-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U8zgb7x92ln1QffeuXe2ENtsJyeXPSp12lU2FvMQ23xYjJLH6TzTG5c7k2h4kpVv xNQqb8aSFsxCtjmyutqcvw== 0000916131-97-000008.txt : 19970401 0000916131-97-000008.hdr.sgml : 19970401 ACCESSION NUMBER: 0000916131-97-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 37 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRENTON BANKS INC CENTRAL INDEX KEY: 0000014060 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 420658989 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-06216 FILM NUMBER: 97569436 BUSINESS ADDRESS: STREET 1: 400 LOCUST ST STREET 2: STE 300 CAPITAL SQ CITY: DES MOINES STATE: IA ZIP: 50309 BUSINESS PHONE: 5152375100 MAIL ADDRESS: STREET 1: 400 LOCUST ST STREET 2: SUITE 300 CAPITAL SQ CITY: DES MOINES STATE: IA ZIP: 50309 10-K 1 BRENTON BANKS, INC. FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period form ___________________ to _____________________ Commission file number 0-6216 BRENTON BANKS, INC. (Exact name of registrant as specified in its charter) Incorporated in Iowa No. 42-0658989 State of other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) Suite 200, Capital Square, 400 Locust, Des Moines, Iowa 50309 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 515-237-5100 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $5 par value (Title of class) 1 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ X ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 10, 1997, was $130,708,000 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the most recent practicable date, March 10, 1997. 8,036,541 shares Common Stock, $5 par value DOCUMENTS INCORPORATED BY REFERENCE The Appendix to the Proxy Statement for the 1995 calendar year is incorporated by reference into Part I, Part II Part IV hereof to the extent indicated in such Parts. The definitive proxy statement of Brenton Banks, Inc., which will be filed not later than 120 days after the close of the Company's fiscal year ending December 31, 1996, is incorporated by reference into Part III hereof to the extent indicated in such Part. 1 of 290 Total Pages 2 TABLE OF CONTENTS PART I Page Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 (A) General Description . . . . . . . . . . . . . . . . . . . . 5 (B) Recent Developments . . . . . . . . . . . . . . . . . . . . 5 (C) Affiliated Banks . . . . . . . . . . . . . . . . . . . . . 7 (D) Bank-Related Subsidiaries and Affiliates . . . . . . . . . 7 (E) Executive Officers and Policymakers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . 7 (F) Employees . . . . . . . . . . . . . . . . . . . . . . . . . 9 (G) Supervision and Regulation . . . . . . . . . . . . . . . . 9 (H) Governmental Monetary Policy and Economic Conditions . . . . . . . . . . . . . . . . . . . . . . . . 10 (I) Competition . . . . . . . . . . . . . . . . . . . . . . . . 10 (J) Statistical Disclosure . . . . . . . . . . . . . . . . . . 12 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 26 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . 26 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 26 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . 26 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . 27 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . 27 3 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . 27 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 27 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . 27 Item 13. Certain Relationships and Related Transactions . . . . . . . . . 27 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 27 Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 4 PART I Item 1. Business. (A) General Description. Brenton Banks, Inc. (the "Parent Company") is a bank holding company registered under the Bank Holding Company Act of 1956 and a savings and loan holding company under the Savings and Loan Holding Company Act. Brenton Banks, Inc. was organized as an Iowa corporation under the name Brenton Companies in 1948. Subsequently, the Parent Company changed its corporate name to its current name, Brenton Banks, Inc. On December 31, 1996, the Parent Company had direct control of its commercial and savings bank (hereinafter the "affiliated banks"), both located in Iowa. The commercial bank is a state bank incorporated under the laws of the State of Iowa and the savings bank is a federal savings bank organized under the laws of the United States. Both of the affiliated banks are members of the Federal Deposit Insurance Corporation. Brenton Banks, Inc. and its subsidiaries (the "Company") engage in retail, commercial and agricultural banking and related financial services from 45 locations throughout Iowa. In connection with this banking industry segment, the Company provides the usual products and services of banking such as deposits, commercial loans, agribusiness loans, personal loans and trust services. The principal services provided by the Company are accepting deposits and making loans. The significant loan categories are commercial, commercial real estate, agribusiness and personal. Commercial loans are made to business enterprises principally to finance inventory, operations or other assets at terms generally up to 5 years. The principal risk involves the customers' management skills and general economic conditions. Commercial real estate mortgage loans are routinely made for terms up to 20 years for real property used in a borrower's business. Repayment primarily depends upon the financial performance and the cashflow of the business enterprise. Declines in commercial real estate values could ultimately affect the collectability of these types of loans. Agri-business loans are made to farmers for financing crop inputs, equipment, livestock and real property used in farming activities. Agri-business loans are also made to businesses related to or that support the production and sale of agricultural products. Weather conditions and government policies have major influences on agricultural financial performance and ultimately the borrower's ability to repay loans. Personal loans are made to individuals primarily on a secured basis to finance such items as residential mortgages, home improvements, personal property, education and vehicles. Unsecured personal loans are made on a limited basis. The individual's credit worthiness and economic conditions affecting the job market are the primary risks associated with personal loans. Personal loans generally do not exceed 5 years. For all loan types, the primary criteria used in determining whether to make a loan is the borrower's ability to repay, which is based upon a cash flow analysis and willingness to pay supported by a historical review of credit management. The principal markets for these loans are businesses and individuals. Iowa has two primary regional market segments. One market consists of selected metropolitan areas across the state which consist of service and manufacturing industries. The other market involves rural areas which are predominately agricultural in nature. These loans are made by the affiliated banks and subsidiaries, and some are sold on the secondary market. The Company also engages in activities that are closely related to banking, including mortgage banking, investment, insurance and real estate brokerage. (B) Recent Developments. Common Stock Dividend. On October 7, 1996, the Board of Directors declared a ten percent common stock dividend to stockholders of record on October 17, 1996. Fractional shares resulting from this stock dividend were paid in cash. 5 Stock Option Plan. On September 5, 1996, a special meeting of stockholders was held to approve the Brenton Banks, Inc. 1996 Stock Option Plan (the "Plan"). The Plan, which was approved, authorizes the granting of options on up to 550,000 shares (all share and per-share data has been adjusted for the ten percent common stock dividend) of the Company's common stock to key employees of the Company. The price at which options may be exercised cannot be less than the fair market value of the shares at the date the options are granted. The options are subject to certain vesting requirements and maximum exercise periods, as established by the Compensation Committee of the Board of Directors. There were 470,800 options granted under the Plan during 1996 to 42 employees of the Company with option prices ranging from $22.159 to $23.625 per share. Common Stock Repurchase Plan. As part of the Company's ongoing stock repurchase plan, in 1996 the Board of Directors authorized additional stock repurchases of $10,000,000 of the Company's common stock. For the years ended December 31, 1996, 1995 and 1994, the Company repurchased 347,700, 258,133 and 44,800 shares, respectively, at total costs of $8,248,331, $4,830,111 and $850,950. Regulatory Developments. The Deposit Insurance Funds Act of 1996 ("Funds Act") was enacted during 1996. The Funds Act required the FDIC to impose a one-time special assessment on Savings Association Insurance Fund (SAIF) assessable deposits held by institutions as of March 31, 1995, and equaled approximately 65.7 basis points per $100 of SAIF-insured deposits. The Company's assessment totaled $1,288,000. Deposits of Brenton Savings Bank, FSB, as well as savings and loan deposits acquired from the RTC in 1990 and 1991, were included in this assessment. As a result of the special assessment, the SAIF was capitalized at the target Designated Reserve Ratio (DRR) of 1.25 percent of estimated insured deposits on October 1, 1996. Assessment rates were subsequently lowered to a level to maintain the DRR. The Funds Act also separated the Financing Corporation (FICO) assessment to service the interest on its bond obligations from the SAIF assessment. The amount assessed on individual institutions by FICO will be in addition to the amount paid for deposit insurance. FICO assessment rates for the first semiannual period of 1997 were set at 1.30 basis points annually for Bank Insurance Fund (BIF) assessable deposits and 6.48 basis points annually for SAIF assessable deposits. These rates are adjustable to reflect changes in assessments bases for BIF and SAIF. Restructuring of Organization. Brenton Banks, Inc. completed its restructuring plan during 1995. The plan, authorized in December, 1994, included consolidating the Company's 13 commercial banks into one bank, reducing the Company's overall personnel levels and closing selected banking branches. During the third quarter of 1995, the Company completed the merger of its 13 commercial banks into a single, state chartered banking organization under the laws of the State of Iowa. As part of this merger process, Brenton Bank Services Corporation was liquidated and became part of the one bank, Brenton Bank. Brenton Mortgages, Inc., formerly a wholly-owned subsidiary of the holding company, is now a subsidiary of Brenton Savings Bank, FSB. The move of this subsidiary was made to accommodate the funding of residential real estate loans with borrowings from the Federal Home Loan Bank. Growth and Acquisitions. As part of management's strategic growth plans, Brenton Banks, Inc. investigates growth and expansion opportunities which strengthen the Company's presence in current or selected new market areas. The Company continues expansion of its traditional and non-traditional services. On October 1, 1992, Brenton Banks, Inc. merged with Ames Financial Corporation and acquired its wholly-owned subsidiary, Ames Savings Bank, FSB of Ames, Iowa whose name has since been changed to Brenton Savings Bank, FSB. The institution continues to operate as a federal savings bank, requiring Brenton Banks, Inc. to also register as a savings and loan holding company. As a savings and loan holding company, Brenton Banks, Inc. is required to file certain reports with and be regulated by the Office of Thrift Supervision. See Item 1, Section (G), Supervision and Regulation. 6 (C) Affiliated Banks. The 2 affiliated banks had 44 banking locations at December 31, 1996, located in 13 of Iowa's 99 counties. These banks serve both agricultural and metropolitan areas. The location and certain other information about the affiliated banks are given below. The main office of Brenton Bank is located in Des Moines, Iowa. Des Moines is the largest city in Iowa. In addition to its main banking location, Brenton Bank has 40 offices located throughout Iowa and provides services to customers in numerous counties across the state. Brenton Savings Bank, FSB is located in Ames, Iowa, and has offices in Ames and Story City. The savings bank serves customers in Story County. (D) Bank-Related Subsidiaries and Affiliates. Brenton Investments, Inc., a wholly owned subsidiary of Brenton Bank, was formed in 1992 and provides a full array of retail investment brokerage services to customers. The company is not involved with the direct issuance, flotation or underwriting of securities. At December 31, 1996, this subsidiary had 37 licensed brokers serving all Brenton banks. Brenton Mortgages, Inc., a wholly-owned subsidiary of Brenton Savings Bank, FSB, engages in the mortgage banking business. This subsidiary originates and services mortgage loans sold to institutional investors and the mortgage loan portfolios of the affiliated banks. Brenton Insurance, Inc. and Brenton Realty Services, Ltd. are wholly-owned subsidiaries of Brenton Bank. These subsidiaries operate real estate brokerage agencies and insurance brokerage agencies handling individual and group life, annuity, health, fire, crop, homeowner's, automobile and liability insurance. Brenton Insurance Services, Inc., a wholly-owned subsidiary of the Parent Company, provides insurance risk management services for the Company. (E) Executive Officers and Policymakers of the Registrant. The term of office for the executive officers and policymakers of the Company is from the date of election until the next Annual Organizational Meeting of the Board of Directors. The names and ages of the executive officers and policymakers of the Company as of March 10, 1997, the offices held by these executive officers and policymakers on that date, the period during which the officers have served as such and the other positions held with the Company by these officers during the past five years are set forth below and on the following page:
Company Position Name and Address Age Position or Subsidiary Commenced Other Positions ________________ ___ ______________________ _________ _______________ C. Robert Brenton 66 Chairman of the Board 1990 Des Moines, Iowa Robert L. DeMeulenaere 57 President 1994 President/Treasurer, Brenton Mortgages, Inc. Des Moines, Iowa - August 1989 to July, 1994; CEO, Brenton Bank and Trust Company of Cedar Rapids - August 1990 to January 1994; Senior Vice President of the Parent Company - August 1990 to January 1994
7
Company Position Name and Address Age Position or Subsidiary Commenced Other Positions ________________ ___ ______________________ _________ _______________ Larry A. Mindrup 55 Chief Banking Officer - 1995 CEO, Brenton Savings Bank, FSB; Ames - April Des Moines, Iowa President, Des Moines 1994 to March 1996; President, Brenton Bank, N.A., Des Moines - May 1995 to September 1995; President, Brenton Savings Bank, FSB, Ames - April 1994 to April 1995; President, Trust Officer and Director, Brenton National Bank - Poweshiek County - January 1991 to March 1994 Phillip L. Risley 54 Chief Administrative 1995 Executive Vice President of the Parent Des Moines, Iowa Officer/ Company - January 1992 to December 1995; Cashier 1995 President and CEO, Brenton Bank, N.A., Des Moines - February 1990 to May 1995; Vice President - Operations of the Parent Company - May 1984 to January 1992; Chairman of the Board, Brenton Bank Services Corporation - May 1992 to September 1995; Executive Vice President/ Treasurer, Brenton Information Systems, Inc. - April 1990 to May 1992 Perry C. Atwood 42 Chief Sales Officer 1996 Des Moines, Iowa Woodward G. Brenton 46 Chief Commercial 1995 President and CEO, Brenton First National Des Moines, Iowa Banking Officer Bank - January 1992 to October 1995; Executive Vice President, Brenton First National Bank, Davenport - January 1991 to January 1992 Charles N. Funk 42 Chief Investment/ 1995 Vice President - Investments, Brenton Banks, Des Moines, Iowa ALCO Officer Inc. - December 1991 to October 1995 Ronald D. Larson 48 Regional President 1995 President, Brenton Bank and Trust Company, Cedar Rapids, Iowa Eastern Iowa Division Marshalltown - January 1991 to July 1993 President, Cedar Rapids 1993 Marc J. Meyer 43 Regional President 1996 Regional President, Agricultural Division, Perry, Iowa Western Iowa Division Brenton Bank - October 1995 to September President, Adel 1996 1996; President, Brenton National Bank of Perry - January 1992 to October 1995 Steven T. Schuler 45 Chief Financial Officer/ 1990 Executive Vice President, Brenton Bank Des Moines, Iowa Treasurer/Secretary 1986 Services Corporation - May 1992 to September 1995 Norman D. Schuneman 54 Chief Credit Officer 1995 Senior Vice President - Lending of the Des Moines, Iowa Parent Company - January 1990 to December 1995; Executive Vice President, Brenton Bank, N.A., Des Moines - July 1985 to October 1995 1988 to January 1990 Gary D. Ernst 53 President - Trust 1995 Vice President - Trust of the Parent Des Moines, Iowa Division Company - June 1990 to December 1995 Mark J. Hoffschneider 45 President, Brenton 1996 Des Moines, Iowa Mortgages, Inc. Elizabeth M. Piper/Bach 44 President, Brenton 1995 Des Moines, Iowa Investments, Inc. All of the foregoing individuals have been employed by the Company for the past five years, except for Perry C. Atwood, who was Senior Vice President at Valley National Bank (merged with Bank One) in Phoenix, Arizona from January 1992 to April 1996; also held positions of Director of Business Banking, Director of Sales and Regional Manager during that time period; Mark J. Hoffschneider, who was Senior Vice President, Lending at Mercantile Bank, FSB in Davenport, Iowa from March 1991 to March 1996 and Elizabeth M. Piper/Bach, who was Vice President and Director of Investment Management Consulting and Training for John G. Kinnard & Co. from 1993 to 1995 and Vice President and Director of the Investment Management Group of Dain Bosworth in Minneapolis, Minnesota, prior to 1993.
8 (F) Employees. On December 31, 1996, the Parent Company had 3 full-time employees and 3 part-time employees. On December 31, 1996, the Company had 602 full-time employees and 177 part-time employees. None of the employees of the Company are represented by unions. The relationship between management and employees of the Company is considered good. (G) Supervision and Regulation. The Company is restricted by various regulatory bodies as to the types of activities and businesses in which it may engage. References to the provisions of certain statutes and regulations are only brief summaries thereof and are qualified in their entirety by reference to those statutes and regulations. The Parent Company cannot predict what other legislation may be enacted or what regulations may be adopted, or, if enacted or adopted, the effect thereof. Furthermore, certain regulatory and legislative changes are discussed in Item 1, Section (B), Recent Developments. The Parent Company, as a bank holding company, is subject to regulation under the Bank Holding Company Act of 1956 (the "Act") and is registered with the Board of Governors of the Federal Reserve System. Under the Act, the Parent Company is prohibited, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5 percent of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to its affiliated banks. However, the Parent Company may engage in and may own shares of companies engaged in certain businesses found by the Board of Governors to be so closely related to banking "as to be a proper incident thereto." The Act does not place territorial restrictions on the activities of bank-related subsidiaries of bank holding companies. The Parent Company is required by the Act to file periodic reports of its operations with the Board of Governors and is subject to examination by the Board of Governors. Under the Act and the regulations of the Board of Governors, bank holding companies and their subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or provision of any property or services. As a savings and loan holding company, Brenton Banks, Inc. is subject to federal regulation and examination by the Office of Thrift Supervision (the "OTS"). The OTS has enforcement authority over the Company which permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings institution. Generally, the activities for a bank holding company are more limited than the authorized activities for a savings and loan holding company. The Parent Company, its affiliated banks and its bank-related subsidiaries are affiliates within the meaning of the Federal Reserve Act and OTS regulations. As affiliates, they are subject to certain restrictions on loans by an affiliated bank to the Parent Company, other affiliated banks or such other subsidiaries, on investments by an affiliated bank in their stock or securities and on an affiliated bank taking such stock and securities as collateral for loans to any borrower. The Company is also subject to certain restrictions with respect to direct issuance, flotation, underwriting, public sale or distribution of certain securities. Brenton Bank is a state bank subject to the supervision of and regular examination by the Iowa Superintendent of Banking and, because of its membership in the Federal Deposit Insurance Corporation ("FDIC"), is subject to examination by the FDIC. Brenton Bank is required to maintain certain minimum capital ratios established by its primary regulator. The provisions of the FDIC Act restrict the activities that insured state chartered banks may engage in to those activities that are permissible for national banks, except where the FDIC determines that the activity poses no significant risk to the deposit insurance fund and the bank remains adequately capitalized. Furthermore, the FDIC Act grants the 9 FDIC the power to take prompt regulatory action against certain undercapitalized and seriously undercapitalized institutions in order to preserve the deposit insurance fund. The affiliated savings bank is subject to the supervision of and regular examination by the OTS and FDIC. In addition to the fees charged by the FDIC, the savings bank is assessed fees by the OTS based upon the savings bank's total assets. As a savings institution, the savings bank is a member of the Federal Home Loan Bank of Des Moines, it is required to maintain certain minimum capital ratios established by the OTS and must meet a qualified thrift lender test (the "QTL") to avoid certain restrictions upon its operations. On December 31, 1996, Brenton Savings Bank, FSB complied with the current minimum capital guidelines and met the QTL test, which it has always met since the test was implemented. During 1994, the "Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994" (the "Interstate Banking Act") was enacted. This law amends certain provisions of the federal banking laws (including the Bank Holding Company Act) to permit the acquisition of banks by banks or bank holding companies domiciled outside of the home state of the acquired bank. The law will become effective on June 1, 1997. The Interstate Banking Act seeks to provide a uniform interstate banking law for all 50 states. The provisions of the law allow states to impose certain "non-discriminatory" conditions upon interstate mergers, including limits on the concentration of deposits. According to Iowa's banking law, Iowa-based banks and bank holding companies can acquire banks and bank holding companies located in other states. Iowa law prohibits a bank holding company or bank controlled by a bank holding company from acquiring additional Iowa based banks or bank holding companies if the total deposits of such bank holding company and its affiliates would exceed 10 percent of the total deposits of all banks and thrifts in the state. Generally, banks in Iowa are prohibited from operating offices in counties other than the county in which the bank's principal office is located and contiguous counties. However, certain banks located in the same or different municipalities or urban complexes may consolidate or merge and retain their existing banking locations by converting to a United Community Bank. The resulting bank would adopt one principal place of business, and would retain the remaining banking locations of the merged or consolidated banks as offices. The Company relied upon the United Community Bank law when it merged its 13 commercial banks into one state chartered bank in 1995. Generally, thrifts can operate offices in any county in Iowa and may, under certain circumstances, acquire or branch into thrifts in other states with the approval of the OTS. (H) Governmental Monetary Policy and Economic Conditions. The earnings of the Company are affected by the policies of regulatory authorities, including the Federal Reserve System. Federal Reserve System monetary policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. Because of changing conditions in the economy and in the money markets, as a result of actions by monetary and fiscal authorities, interest rates, credit availability and deposit levels may change due to circumstances beyond the control of the Company. Future policies of the Federal Reserve System and other authorities cannot be predicted, nor can their effect on future earnings be predicted. (I) Competition. The banking business in Iowa is highly competitive and the affiliated banks compete not only with banks and thrifts, but with sales, finance and personal loan companies; credit unions; and other financial institutions which are active in the areas in which the affiliated banks operate. In addition, the affiliated banks compete for customer funds with other investment alternatives available through investment brokers, insurance companies, finance companies and other institutions. 10 The multi-bank holding companies which own banks in Iowa are in direct competition with one another. Brenton Banks, Inc. is the largest multi- bank holding company domiciled in Iowa. There are six other multi-bank holding companies which operate banks in Iowa, but are domiciled in other states. The Iowa deposits of these holding companies are of similar size or greater when compared to Brenton Banks, Inc. Certain of the subsidiary banks of these multi-bank holding companies may compete with certain of the Parent Company's affiliated banks and any other affiliated financial institutions which may be acquired by the Parent Company. These multi-bank holding companies, other smaller bank holding companies, chain banking systems and others may compete with the Parent Company for the acquisition of additional banks. The Company has also expanded into the investment brokerage business in the last several years, placing brokers in many Brenton bank locations as well as individual brokerage offices. The Brenton brokers compete with brokers from regional and national investment brokerage firms. 11 Item 1(J) Business - Statistical Disclosure The following statistical disclosures relative to the consolidated operations of the Company have been prepared in accordance with Guide 3 of the Guides for the Preparation and Filing of Reports and Registration Statements under the Securities Exchange Act of 1934. Average balances were primarily calculated on a daily basis. I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential The following summarizes the average consolidated statement of condition by major type of account, the interest earned and interest paid and the average yields and average rates paid for each of the three years ending December 31, 1996:
1996 1995 1994 ______________________________ ______________________________ ______________________________ Interest Average Interest Average Interest Average Average Income or Yields or Average Income or Yields or Average Income or Yields or Balance Expense Rates Balance Expense Rates Balance Expense Rates _________ __________ _________ __________ _________ _________ __________ _________ _________ (Dollars in thousands) Assets: Interest-earning assets Loans (1,2) $ 919,578 $ 79,921 8.69% $ 945,724 $ 82,136 8.68% $ 936,370 $ 76,271 8.14% Investment securities held to maturity: Taxable investments: Securities of United States government agencies 38,596 2,362 6.12 27,381 1,570 5.73 2,001 98 4.92 Mortgage-backed and related securities 3,509 261 7.45 36,214 2,370 6.54 29,834 1,679 5.63 Other investments 4,166 255 6.12 2,364 130 5.49 3,959 85 2.15 Tax-exempt investments: Obligations of states and political subdivisions(2) 51,639 3,449 6.68 50,235 4,044 8.05 44,584 3,433 7.70 Investment securities available for sale: United States Treasury securities 36,582 2,109 5.76 42,416 2,271 5.35 55,580 2,519 4.53 Securities of United States government agencies 77,436 4,606 5.95 79,000 4,939 6.25 58,603 3,016 5.15 (1) The average outstanding balance is net of unearned income and includes nonaccrual loans. (2) Interest income and yields are stated on a tax-equivalent basis using a 34 percent federal income tax rate and are adjusted to reflect the effect of the nondeductible interest expense of owning tax-exempt investments. The standard federal income tax rate is used for consistency presentation.
12 Item 1(J) Business - Statistical Disclosure, Continued I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential, Continued
1996 1995 1994 ______________________________ ______________________________ ______________________________ Interest Average Interest Average Interest Average Average Income or Yields or Average Income or Yields or Average Income or Yields or Balance Expense Rates Balance Expense Rates Balance Expense Rates _________ __________ _________ __________ _________ _________ __________ _________ _________ (Dollars in thousands) Mortgage-backed and related securities 207,029 12,780 6.17 113,834 6,658 5.85 124,591 6,864 5.51 Other investments 8,955 568 6.34 9,536 710 7.44 7,255 641 8.87 Tax-exempt investments: Obligations of states and political subdivisions (1) 85,471 6,097 7.13 100,859 6,763 6.71 132,040 8,412 6.37 Loans held for sale 7,983 676 8.47 5,908 396 6.70 2,575 193 7.50 Federal funds sold and securities purchased under agreements to resell 26,188 1,417 5.41 39,763 2,264 5.69 37,666 1,706 4.53 Interest-bearing deposits with banks 1,393 68 4.87 1,076 67 6.20 124 8 6.65 _________ _______ ____ _________ _______ ____ _________ _______ ____ Total interest-earning assets(1) 1,468,525 $114,569 7.80% 1,454,310 $114,318 7.86% 1,435,182 $104,925 7.31% Allowance for loan losses (11,440) (11,166) (10,502) Cash and due from banks 65,439 57,138 46,301 Premises and equipment 31,728 31,436 24,545 Other assets 28,642 29,508 25,663 _________ _________ _________ Total assets $1,582,894 $1,561,226 $1,521,189 (1) Interest income and yields are stated on a tax-equivalent basis using a 34 percent federal income tax rate and are adjusted to reflect the effect of the nondeductible interest expense of owning tax-exempt investments. The standard federal income tax rate is used for consistency of presentation.
13 Item 1(J) Business - Statistical Disclosure, Continued I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential, Continued
1996 1995 1994 ______________________________ ______________________________ ______________________________ Interest Average Interest Average Interest Average Average Income or Yields or Average Income or Yields or Average Income or Yields or Balance Expense Rates Balance Expense Rates Balance Expense Rates _________ __________ _________ __________ _________ _________ __________ _________ _________ (Dollars in thousands) Liabilities and stockholders' equity: Interest-bearing liabilities: Interest-bearing deposits: Demand $ 376,259 $11,194 2.98% $ 355,819 $11,842 3.33% $ 250,520 $ 5,418 2.16% Savings 241,250 6,134 2.54 231,633 6,638 2.87 294,715 6,878 2.33 Time 583,508 32,179 5.51 626,497 34,595 5.52 625,981 29,313 4.68 Federal funds purchased and securities sold under agreements to repurchase 59,276 2,470 4.17 40,237 1,641 4.08 61,656 2,082 3.38 Other short-term borrowings 17,294 1,015 5.87 6,536 371 5.67 4,860 264 5.42 Long-term borrowings 33,094 2,339 7.07 37,264 2,621 7.03 26,500 1,817 6.86 _________ ______ ____ _________ ______ ____ _________ ______ ____ Total interest-bearing liabilities 1,310,681 $55,331 4.22% 1,297,986 $57,708 4.45% 1,264,232 $45,772 3.62% Noninterest-bearing deposits 131,051 128,770 127,464 Accrued expenses and other liabilities 17,521 14,896 13,254 _________ _________ _________ Total liabilities 1,459,253 1,441,652 1,404,950 Minority interest 4,471 4,391 4,290 Common stockholders' equity 119,170 115,183 111,949 _________ _________ _________ Total liabilities and stockholders' equity $1,582,894 $1,561,226 $1,521,189 Net interest spread (1) 3.58% 3.41% 3.69% Net interest income/margin (1) $59,238 4.03% $56,610 3.89% $59,153 4.12% (1) Interest income and yields are stated on a tax-equivalent basis using a 34 percent federal income tax rate and are adjusted to reflect the effect of the nondeductible interest expense of owning tax-exempt investments. The standard federal income tax rate is used for consistency of presentation.
14 Item 1(J) Business - Statistical Disclosure, Continued I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential, Continued The following shows the changes in interest earned and interest paid due to changes in volume and changes in rate for each of the two years ended December 31, 1996:
1996 vs. 1995 1995 vs. 1994 __________________________ __________________________ Variance Variance due to due to _______________ _______________ Variance Volume Rate Variance Volume Rate ________ ______ ____ ________ ______ ____ (In thousands) (In thousands) Interest Income: Loans (1,2) $ (2,215) (2,272) 57 $ 5,865 769 5,096 Investment securities held to maturity: Taxable investments: Securities of United States government agencies 792 680 112 1,472 1,452 20 Mortgage-backed and related securities (2,109) (2,394) 285 691 392 299 Other investments 125 109 16 45 (45) 90 Tax-exempt investments: Obligations of states and political subdivisions (2) (595) 110 (705) 611 450 161 Investment securities available for sale: Taxable investments: United States Treasury securities (162) (328) 166 (248) (658) 410 Securities of United States government agencies (333) (96) (237) 1,923 1,189 734 Mortgage-backed and related securities 6,122 5,734 388 (206) (614) 408 Other investments (142) (42) (100) 69 180 (111) Tax-exempt investments: Obligations of states and political subdivisions (2) (666) (1,078) 412 (1,649) (2,072) 423 Loans held for sale 280 160 120 203 225 (22) Federal funds sold and securities purchased under agreements to resell (847) (739) (108) 558 99 459 Interest-bearing deposits with banks 1 17 (16) 59 60 (1) _______ _______ _______ _______ _______ _______ 251 (139) 390 9,393 1,427 7,966 _______ _______ _______ _______ _______ _______ Interest Expense: Interest-bearing deposits: Demand (648) 655 (1,303) 6,424 2,815 3,609 Savings (504) 267 (771) (240) (1,634) 1,394 Time (2,416) (2,371) (45) 5,282 24 5,258 Federal funds purchased and securities sold under agreements to repurchase 829 793 36 (441) (818) 377 Other short-term borrowings 644 631 13 107 95 12 Long-term borrowings (282) (295) 13 804 756 48 _______ _______ _______ _______ _______ _______ (2,377) (320) (2,057) 11,936 1,238 10,698 _______ _______ _______ _______ _______ _______ Net interest income (expense) $ 2,628 181 2,447 $ (2,543) 189 (2,732) _______ _______ _______ _______ _______ _______ Note: The change in interest due to both rate and volume has been allocated to change due to volume and rate in proportion to the relationship of the absolute dollar amounts of the change in each. (1) Nonaccrual loans have been included in the analysis of volume and rate variances. (2) Computed on tax-equivalent basis using a 34 percent federal income tax rate and adjusted to reflect the effect of the nondeductible interest expense of owning tax-exempt investments.
15 Item 1(J) Business - Statistical Disclosure, Continued I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential, Continued Interest Rate Sensitivity Analysis The following schedule shows the matching of interest sensitive assets to interest sensitive liabilities by various maturity or repricing periods as of December 31, 1996. As the schedule shows, the Company is liability sensitive within the one-year time frame. Included in the three months or less sensitivity category are all interest-bearing demand and savings accounts. Although these deposits are contractually subject to immediate repricing, management believes a large portion of these accounts are not synchronized with overall market rate movements.
3 Months Over 3 Over 6 Total Over 1 or through 6 through 12 within through 5 Over Less Months Months 1 Year Years 5 Years Total ---- ------ ------ ------ ----- ------- ----- (In thousands) Interest-earning assets: Loans (1)(3) $ 315,296 29,402 62,254 406,952 412,631 119,698 939,281 Investment securities: Available for sale: Taxable investments (3) 87,331 39,383 63,539 190,253 154,536 22,355 367,144 Tax-exempt investments 4,018 9,985 9,721 23,724 46,101 24,130 93,955 Held to maturity: Taxable investments 1,869 10,237 2,147 14,253 6,264 55 20,572 Tax-exempt investments 3,475 4,512 8,779 16,766 27,722 7,695 52,183 ________ ______ ______ _______ _______ _______ _______ Total investment securities 96,693 64,117 84,186 244,996 234,623 54,235 533,854 Loans held for sale 5,870 --- --- 5,870 --- --- 5,870 Federal funds sold and securities purchased under agreements to resell 15,200 -- -- 15,200 -- -- 15,200 Interest-bearing deposits with banks 732 -- -- 732 -- -- 732 _________ _________ _________ _________ ________ _______ _________ Total interest-earning assets $ 433,791 93,519 146,440 673,750 647,254 173,933 1,494,937 _________ _________ _________ _________ ________ _______ _________ Interest-bearing liabilities: Interest-bearing deposits: Demand and savings deposits (2) $ 627,069 -- -- 627,069 -- -- 627,069 Time deposits 101,789 108,264 125,477 335,530 237,008 166 572,704 Federal funds purchased and securities sold under agreements to repurchase 66,826 -- -- 66,826 -- -- 66,826 Other short-term borrowings 6,500 2,500 25,150 34,150 -- -- 34,150 Long-term borrowings -- -- 1,464 1,464 28,622 4,774 34,860 _________ _________ _________ _________ ________ _______ _________ Total interest-bearing liabilities $ 802,184 110,764 152,091 1,065,039 265,630 4,940 1,335,609 _________ _________ _________ _________ ________ _______ _________ Interest sensitivity GAP $ (368,393) (17,245) (5,651) (391,289) 381,624 168,993 159,328 _________ _________ _________ _________ ________ _______ _________ Interest sensitivity GAP ratio .54:1 .84:1 .96:1 .63:1 2.44:1 35.21:1 1.12:1 _________ _________ _________ _________ ________ _______ _________ Cumulative interest sensitivity GAP $ (368,393) (385,638) (391,289) (391,289) (9,665) 159,328 159,328 _________ _________ _________ _________ ________ _______ _________ Cumulative interest sensitivity GAP ratio .54:1 .58:1 .63:1 .63:1 .99:1 1.12:1 1.12:1 _________ _________ _________ _________ ________ _______ _________ (1) Nonaccrual loans have been excluded from the interest rate sensitivity analysis. (2) Interest-bearing demand and savings deposits are included in the 3 months or less sensitivity category. (3) Assumed repayments on mortgage-related loans and investments are based upon projected prepayment speeds which are determined by considering Wall Street estimates.
16 Item 1(J) Business - Statistical Disclosure, Continued II. Investment Portfolio The carrying value of investment securities at December 31 for each of the past three years follows:
December 31, ______________________________ 1996 1995 1994 ____ ____ ____ (In thousands) Investment securities available for sale (market value): Taxable investments: United States Treasury securities $ 41,351 27,775 50,641 Securities of United States government agencies 98,153 72,822 66,037 Mortgage-backed and related securities 219,447 191,028 104,121 Other investments 8,193 9,071 10,812 Tax-exempt investments: Obligations of states and political subdivisions 93,955 95,674 117,598 _______ _______ _______ 461,099 396,370 349,209 _______ _______ _______ Investment securities held to maturity (amortized cost): Taxable investments: Securities of United States government agencies 15,065 48,595 9,444 Mortgage-backed and related securities 3,041 3,653 35,282 Other investments 2,466 6,145 3,087 Tax-exempt investments: Obligations of states and political subdivisions 52,183 49,689 46,671 _______ _______ _______ 72,755 108,082 94,484 _______ _______ _______ Total investment securities $533,854 504,452 443,693 _______ _______ _______
17 Item 1(J) Business - Statistical Disclosure, Continued II. Investment Portfolio The following table shows the maturity distribution and weighted average yields of investment securities at December 31, 1996:
Investments by Maturity and Yields at December 31, 1996 ____________________________________________________________________________ After One After Five Within but through but through After One Year Five Years Ten Years Ten Years _______________ _______________ _______________ _______________ Amount Yield Amount Yield Amount Yield Amount Yield ______ _____ ______ _____ ______ _____ ______ _____ (Dollars in thousands) Investment securities available for sale: Taxable investments: United States Treasury securities $ 15,489 5.65% $ 25,862 5.91% $ -- --% $ -- --% Securities of United States government agencies 28,285 5.66 51,368 6.08 18,500 6.48 -- -- Mortgage-backed and related securities 64,409 6.17 101,973 6.28 47,467 6.52 5,598 6.44 Other investments 5,901 6.56 2,292 6.02 -- -- -- -- Tax-exempt investments: Obligations of states and political subdivisions 16,226 4.27 48,201 5.01 7,749 5.11 21,779 5.55 _______ ____ _______ ____ ______ ____ ______ ____ 130,310 5.78 229,696 5.93 73,716 6.36 27,377 5.73 _______ ____ _______ ____ ______ ____ ______ ____ Investment securities held to maturity: Taxable investments: Securities of United States government agencies 4,926 5.51 -- -- 10,139 6.13 -- -- Mortgage-backed and related securities 783 7.33 1,338 7.33 920 7.36 -- -- Other investments 1,260 6.34 1,152 5.80 54 7.87 -- -- Tax-exempt investments: Obligations of states and political subdivisions 15,275 4.29 26,116 4.58 4,194 5.30 6,598 5.88 _______ ____ _______ ____ ______ ____ ______ ____ 22,244 4.79 28,606 4.76 15,307 5.98 6,598 5.88 _______ ____ _______ ____ ______ ____ ______ ____ Total investment securities $152,554 5.63% $258,302 5.80% $89,023 6.29% $33,975 5.76% _______ ____ _______ ____ ______ ____ ______ ____
NOTE: The weighted average yields are calculated on the basis of the cost and effective yields for each scheduled maturity group. The weighted average yields for tax-exempt obligations have been adjusted to a fully-taxable basis, assuming a 34 percent federal income tax rate and are adjusted to reflect the effect of the nondeductible interest expense of owning tax-exempt investments. As of December 31, 1996, the Company did not have securities from a single issuer, other than the United States Government or its agencies, which exceeded 10 percent of consolidated common stockholders' equity. Maturities of all investment securities are managed to meet the Company's normal liquidity needs. Investment securities available for sale may be sold prior to maturity to meet liquidity needs, to respond to market changes or to adjust the Company's asset/liability position. 18 Item 1(J) Business - Statistical Disclosure, Continued III. Loan Portfolio The following table shows the amount of loans outstanding by type as of December 31 for each of the past five years:
December 31 ____________________________________________________ 1996 1995 1994 1993 1992 ____ ____ ____ ____ ____ (In thousands) 1. Real estate loans: a. Commercial construction and land development $ 42,693 38,123 26,549 24,189 25,180 b. Secured by 1-4 family residential property 338,010 319,430 389,713 349,810 324,124 c. Other 150,395 163,739 143,960 129,574 101,418 2. Loans to financial institutions (primarily bankers' acceptances) -- -- -- -- 393 3. Loans to farmers 69,660 68,543 71,853 66,574 62,471 4. Commercial and industrial loans 132,395 119,368 115,280 90,521 75,062 5. Loans to individuals for personal expenditures, net of unearned income 207,193 199,489 221,627 214,401 163,876 6. All other loans 1,598 1,501 1,232 812 930 _______ _______ _______ _______ _______ $941,944 910,193 970,214 875,881 753,454 _______ _______ _______ _______ _______
19 Item 1(J) Business - Statistical Disclosure, Continued III. Loan Portfolio, Continued The following table shows the maturity distribution of loans as of December 31, 1996 (excluding real estate loans secured by 1-4 family residential property and loans to individuals for personal expenditures):
Loans by Maturity at December 31, 1996 ________________________________________ After One Year Within through After Five One Year Five Years Years Total ________ __________ _____ _____ (In thousands) 1. Real estate loans: a. Commercial construction and land development $ 32,941 7,789 1,963 42,693 b. Other 41,290 56,629 52,476 150,395 2. Loans to financial institutions -- -- -- -- 3. Loans to farmers 44,606 21,645 3,409 69,660 4. Commercial and industrial loans 83,338 38,981 10,076 132,395 5. All other loans 813 601 184 1,598 _______ _______ ______ _______ $202,988 125,645 68,108 396,741 _______ _______ ______ _______
The above loans due after one year which have predetermined and floating interest rates follow: Predetermined interest rates $ 55,316 _______ Floating interest rates $138,437 _______ 20 Item 1(J) Business - Statistical Disclosure, Continued III. Loan Portfolio, Continued The following schedule shows the dollar amount of loans at December 31 for each of the past five years which were either accounted for on a nonaccrual basis, had been restructured to below market terms to provide a reduction or deferral of interest or principal, or were 90 days or more past due as to interest or principal. Each particular loan has been included in only the most appropriate category.
1996 1995 1994 1993 1992 ____ ____ ____ ____ ____ (In thousands) Nonaccrual $2,663 2,639 3,784 1,605 1,884 Restructured 568 178 298 323 448 Past due 90 days or more 2,936 2,802 940 2,085 2,261 _____ _____ _____ _____ _____ Nonperforming loans $6,167 5,619 5,022 4,013 4,593 _____ _____ _____ _____ _____
Interest income recorded during 1996 on nonaccrual and restructured loans amounted to $174,000. The amount of interest income which would have been recorded during 1996, if nonaccrual and restructured loans had been current in accordance with the original terms, was $363,000. The amounts scheduled above include the entire balance of any particular loan. Much of the scheduled amount is adequately collateralized, and thus does not represent the amount of anticipated charge-offs in the future. The loans scheduled are representative of the entire customer base of the Company and, therefore, are not concentrated in a specific industry or geographic area other than the loans to farmers in Iowa. Overdrafts are loans for which interest does not normally accrue. Since overdrafts are generally low volume, they were not included in the above schedule, unless there was serious doubt concerning collection. The accrual of interest income is stopped when the ultimate collection of a loan becomes doubtful. A loan is placed on nonaccrual status when it becomes 90 days past due, unless it is both well secured and in the process of collection. Once determined uncollectible, previously accrued interest is charged to the allowance for loan losses. In addition to the loans scheduled above, management has identified other loans which, due to a change in economic circumstances or a deterioration in the financial position of the borrower, present serious concern as to the ability of the borrower to comply with present repayment terms. Additionally, management considers the identification of loans classified for regulatory or internal purposes as loss, doubtful, substandard or special mention. This serious concern may eventually result in certain of these loans being classified in one of the above-scheduled categories. At December 31, 1996, these loans amounted to approximately $1 million. As of December 31, 1996, management is unaware of any other material interest-earning assets which have been placed on a nonaccrual basis, have been restructured, or are 90 days or more past due. The amount of other real estate owned, which has been received in lieu of loan repayment, amounted to $488,000 and $869,000 at December 31, 1996, and 1995, respectively. 21 Item 1(J) Business - Statistical Disclosure, Continued IV. Summary of Loan Loss Experience The following is an analysis of the allowance for loan losses for years ended December 31, for each of the past five years:
Year Ended December 31 _______________________________________________ 1996 1995 1994 1993 1992 ____ ____ ____ ____ ____ (In thousands) Total loans at the end of the year $941,944 910,193 970,214 875,881 753,454 Average loans outstanding 919,578 945,724 936,370 802,088 736,646 _______ _______ _______ _______ _______ Allowance for loan losses - beginning of the year $ 11,070 10,913 9,818 9,006 8,548 _______ _______ _______ _______ _______ Amount of charge-offs during year: Real estate loans 479 41 83 109 276 Loans to financial institutions -- -- -- -- -- Loans to farmers 365 36 31 68 45 Commercial and industrial loans 594 340 337 54 252 Loans to individuals for personal expenditures 2,623 2,960 1,943 1,230 1,304 All other loans -- -- 48 70 67 _______ _______ _______ _______ _______ Total charge-offs 4,061 3,377 2,442 1,531 1,944 _______ _______ _______ _______ _______ Amount of recoveries during year: Real estate loans 68 66 101 101 32 Loans to financial institutions -- -- -- -- -- Loans to farmers 138 50 146 81 179 Commercial and industrial loans 95 400 334 248 125 Loans to individuals for personal expenditures 1,118 1,153 947 641 635 All other loans -- -- 21 20 20 _______ _______ _______ _______ _______ Total recoveries 1,419 1,669 1,549 1,091 991 _______ _______ _______ _______ _______ Net loans charged-off during year 2,642 1,708 893 440 953 _______ _______ _______ _______ _______ Additions to allowance charged to operating expense 2,900 1,865 1,988 1,252 1,411 _______ _______ _______ _______ _______ Allowance for loan losses - end of the year $ 11,328 11,070 10,913 9,818 9,006 _______ _______ _______ _______ _______ Ratio of allowance to loans outstanding at end of year 1.20% 1.22 1.12 1.12 1.20 ____ ____ ____ ____ ____ Ratio of net charge-offs to average loans outstanding .29% .18 .10 .05 .13 ___ ___ ___ ___ ___
NOTE: The provision for loan losses charged to operating expenses is based upon management's evaluation of the loan portfolio, past loan loss experience and the level of the allowance for loan losses necessary to support management's evaluation of potential losses in the loan portfolio. Management's evaluation of the allowance for loan losses is based upon several factors including economic conditions, historical loss and collection experience, risk characteristics of the loan portfolio, underlying collateral values, industry risk and credit concentrations. 22 Item 1(J) Business - Statistical Disclosure, Continued IV. Summary of Loan Loss Experience, Continued In the following summary, the Company has allocated the allowance for loan losses according to the amount deemed to be reasonably necessary to provide for losses within each category of loans. The amount of the allowance applicable to each category and the percentage of loans in each category to total loans follows:
Year Ended December 31 __________________________________________________________________________________________ 1996 1995 1994 1993 1992 Allowance Percent Allowance Percent Allowance Percent Allowance Percent Allowance Percent for of Loans for of Loans for of Loans for of Loans for of Loans Loan to Total Loan to Total Loan to Total Loan to Total Loan to Total Losses Loans Losses Loans Losses Loans Losses Loans Losses Loans ______ _____ ______ _____ ______ _____ ______ _____ _____ _____ (Dollars in thousands) Real estate loans $ 2,200 56.4% $ 2,400 57.3% $2,600 57.7% $2,400 57.5% $2,200 59.8% Loans to financial institutions -- -- -- -- -- -- -- -- -- .1 Loans to farmers 1,000 7.4 1,300 7.5 1,400 7.4 1,600 7.6 1,200 8.3 Commercial and industrial loans 3,200 14.0 2,900 13.1 2,800 11.9 2,700 10.3 2,700 10.0 Loans to individuals for personal expenditures 4,928 22.0 4,470 21.9 4,113 22.8 3,118 24.5 2,906 21.3 All other loans -- .2 -- .2 -- .2 -- .1 -- .5 ______ _____ ______ _____ _____ _____ _____ _____ _____ _____ $11,328 100.0% $11,070 100.0% $10,913 100.0% $9,818 100.0% $9,006 100.0% ______ _____ ______ _____ _____ _____ _____ _____ _____ _____
23 Item 1(J) Business - Statistical Disclosure, Continued V. Deposits A classification of the Company's average deposits and average rates paid for the years indicated follows:
Year Ended December 31 __________________________________________ 1996 1995 1994 ____________ ____________ ____________ Amount Rate Amount Rate Amount Rate ______ ____ ______ ____ ______ ____ (Dollars in thousands) Noninterest-bearing deposits $ 131,051 --% $ 128,770 --% $ 127,464 --% Interest-bearing deposits: Demand 376,259 2.98 355,819 3.33 250,520 2.16 Savings 241,250 2.54 231,633 2.87 294,715 2.33 Time 583,508 5.51 626,497 5.52 625,981 4.68 _________ ____ _________ ____ _________ ____ $1,332,068 $1,342,719 $1,298,680 _________ _________ _________
The following sets forth the maturity distribution of all time deposits of $100,000 or more as of December 31, 1996: Large Time Deposits by Maturity at Maturity Remaining December 31, 1996 __________________ ___________________ (In thousands) Less than 3 months $23,750 Over 3 through 6 months 20,927 Over 6 through 12 months 12,259 Over 12 months 25,075 ______ $82,011 ______ VI. Return on Equity and Assets Various operating and equity ratios for the years indicated are presented below:
Year Ended December 31, ________________________ 1996 1995 1994 ____ ____ ____ Return on average total assets: Net income before deduction of minority interest .92% .71% .70% Return on average equity 11.76 9.04 9.03 Common dividend payout ratio 26.86 33.58 34.65 Average equity to average assets 7.53 7.38 7.36 Equity to assets ratio 7.41 7.47 7.28 Tier 1 leverage capital ratio 7.62 7.45 7.23 Primary capital ratio 8.33 8.40 8.18 ____ ____ ____
24 Item 1(J) Business - Statistical Disclosure, Continued VII. Short-Term Borrowings Information relative to federal funds purchased and securities sold under agreements to repurchase follows:
1996 1995 1994 ____ ____ ____ (Dollars in thousands) Amount outstanding at December 31 $66,826 41,107 70,704 Weighted average interest rate at December 31 3.74% 4.14 4.73 Maximum amount outstanding at any quarter-end $73,359 41,107 70,704 Average amount outstanding during the year $59,276 40,237 61,656 Weighted average interest rate during the year 4.17% 4.08 3.38 ____ ____ ____
Information relative to other short-term borrowings, which consist primarily of Federal Home Loan Bank borrowings, follows:
1996 1995 1994 ____ ____ ____ (Dollars in thousands) Amount outstanding at December 31 $34,150 2,500 12,000 Weighted average interest rate at December 31 5.97% 4.68 5.40 Maximum amount outstanding at any quarter-end $34,150 7,000 12,000 Average amount outstanding during the year $17,294 6,536 4,860 Weighted average interest rate during the year 5.87% 5.67 5.42 ____ ____ ____
25 Item 2. Properties. At December 31, 1996, the affiliated banks and subsidiaries had 45 service locations with approximately 305,000 square feet, all located in Iowa. Of these locations, 30 were owned by the Company - approximately 222,000 square feet; 3 were owned buildings on leased land - approximately 30,000 square feet and 12 were operated under lease contracts with unaffiliated parties - approximately 53,000 square feet. The Company leases certain real estate and equipment under long-term and short-term leases. The Company owns certain real estate which is leased to unrelated persons. Item 3. Legal Proceedings. The Company (Brenton Banks, Inc. and its subsidiaries) is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders. There were no matters submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders, through the solicitation of proxies or otherwise. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. The information appearing on pages 23 and 30 of the Corporation's Appendix to the Proxy Statement, filed as Exhibit 13 hereto, is incorporated herein by reference. There were approximately 1,546 holders of record of the Parent Company's $5 common stock as of March 10, 1997. The closing bid price of the Parent Company's common stock was $27.75 on March 10, 1997. The Parent Company increased dividends to common shareholders in 1996 to $.454 per share, a 11.0 percent increase over $.409 for 1995. Dividend declarations are evaluated and determined by the Board of Directors on a quarterly basis. In January 1997, the Board of Directors declared a dividend of $.13 per common share. There are currently no restrictions on the Parent Company's present or future ability to pay dividends. Item 6. Selected Financial Data. The information appearing on page 11 of the Company's Appendix to the Proxy Statement, filed as Exhibit 13 hereto, is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information appearing on pages 3 through 9 of the Company's Appendix to the Proxy Statement, filed as Exhibit 13 hereto, is incorporated herein by reference. 26 Item 8. Financial Statements and Supplementary Data. The information appearing on pages 12 through 29 of the Company's Appendix to the Proxy Statement, filed as Exhibit 13 hereto, is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Within the twenty-four months prior to the date of the most recent financial statements, there has been no change of accountants of the Company. PART III Item 10. Directors and Executive Officers of the Registrant. The definitive proxy statement of Brenton Banks, Inc., which will be filed not later than 120 days following the close of the Company's fiscal year ending December 31, 1996, is incorporated herein by reference. See also Item 1(E) of this Form 10-K captioned "Executive Officers of the Registrant." Item 11. Executive Compensation. The definitive proxy statement of Brenton Banks, Inc., which will be filed not later than 120 days following the close of the Company's fiscal year ended December 31, 1996, is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The definitive proxy statement of Brenton Banks, Inc., which will be filed not later than 120 days following the close of the Company's fiscal year ending December 31, 1996, is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. The definitive proxy statement of Brenton Banks, Inc., which will be filed not later than 120 days following the close of the Company's fiscal year ending December 31, 1996, is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. The following exhibits and financial statement schedules are filed as part of this report: (a) 1. Financial Statements: See the financial statements on pages 12 through 29 of the Company's Appendix to the Proxy Statement, filed as Exhibit 13 hereto, which are incorporated by reference herein. 2. Financial Statement Schedules: See Exhibits 11 and 12, for computation of earnings per share and ratios. 27 3. Exhibits (not covered by independent auditors' report). Exhibit 3 The Articles of Incorporation, as amended, and Bylaws, as amended, of Brenton Banks, Inc. These Articles of Incorporation and Bylaws are incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1993. Exhibit 10.1 Summary of the Company's Bonus Plans under which some of the executive officers of the Company and certain other personnel of the subsidiaries are eligible to receive a bonus each year. Exhibit 10.2 1996 Stock Option Plan, Administrative Rules and Agreement under which officers of the Company are eligible to receive options to purchase an aggregate of 550,000 shares of the Company's $5 par value common stock. This 1996 Stock Option Plan, Administrative Rules and Agreement is incorporated by reference from Form 10-Q of Brenton Banks, Inc. for the quarter ended September 30, 1996. Exhibit 10.3 Directors' Incentive Plan. This Directors' Incentive Plan is incorporated by reference from Form 10-Q of Brenton Banks, Inc. for the quarter ended September 30, 1995. Exhibit 10.4 Employment Agreement, dated July 6, 1989, between William H. Brenton and Brenton Banks, Inc. This Employment Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1994. Exhibit 10.5 Non-Qualified Stock Option Plan, Administrative Rules and Agreement under which officers of the Company are eligible to receive options to purchase an aggregate of 330,000 shares of the Company's $5 par value common stock. This Non-Qualified Stock Option Plan, Administrative Rules and Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1992. 28 Exhibit 10.6 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1994, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. This Long-Term Stock Compensation Plan, Agreements and related documents are incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1994. Exhibit 10.7 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1993, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. This Long-Term Stock Compensation Plan, Agreements and related documents are incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1993. Exhibit 10.8 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1995, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. This Long-Term Stock Compensation Plan, Agreements and related documents are incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1995. Exhibit 10.9 Standard Agreement for Advances, Pledge and Security Agreement between Brenton Banks and the Federal Home Loan Bank of Des Moines. This Standard Agreement for Advances, Pledge and Security Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1993. Exhibit 10.10 Short-term note with American National Bank & Trust Company of Chicago as of April 30, 1996, setting forth the terms of the Parent Company's $2,000,000 short-term debt agreement. Exhibit 10.11 Data Processing Agreement dated December 1, 1991 by and between ALLTEL Financial Information Services, Inc., (formerly Systematics, Inc.) and Brenton Bank (formerly Brenton Information Systems, Inc.). 29 Exhibit 10.12 Correspondent Services Agreement dated November 13, 1996 between Brenton Bank and the Federal Home Loan Bank of Des Moines. Exhibit 10.13 Adoption Agreement #003 - Nonstandardized Code Section 401(k) Profit Sharing Plan, effective November 14, 1996. Exhibit 10.14 Indenture Agreement with respect to Capital Notes dated April 12, 1993. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1993. Exhibit 10.15 Indenture Agreement with respect to Capital Notes dated April 14, 1992. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1992. Exhibit 10.16 Indenture Agreement with respect to Capital Notes dated March 27, 1991. Exhibit 10.17 Indenture Agreement with respect to Capital Notes dated August 5, 1991. Exhibit 10.18 Indenture Agreement with respect to Capital Notes dated April 8, 1994. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1994. Exhibit 10.19 Indenture Agreement with respect to Capital Notes dated April 10, 1995. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1995. Exhibit 10.20 Indenture Agreement with respect to Capital Notes dated April 10, 1996. 30 Exhibit 10.21 Split Dollar Insurance Agreement between the Company, William H. Brenton Crummy Trust and William H. Brenton Crummy Trust II, dated November 23, 1994. This Split Dollar Insurance Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1994. Exhibit 10.22 Split Dollar Insurance Agreement between the Company and Brenton Life Insurance Trust for the benefit of C. Robert Brenton, dated August 12, 1994. This Split Dollar Insurance Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1994. Exhibit 10.23 Split Dollar Insurance Agreement between the Company and Brenton Life Insurance Trust for the benefit of Junius C. Brenton, dated January 12, 1997. Exhibit 10.24 Agreement between Robert L. DeMeulenaere and the Company regarding the change in control arrangements, dated December 31, 1994. This Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1994. Exhibit 10.25 Agreement between Larry A. Mindrup and the Company regarding the change in control arrangements, dated December 31, 1994. This Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1994. Exhibit 10.26 Agreement between Norman D. Schuneman and the Company regarding the change in control arrangements, dated December 31, 1994. This Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1995. Exhibit 10.27 Twelfth Amendment to Data Processing Agreement dated July 1, 1995, by and between ALLTEL Financial Information Services, Inc. (formerly Systematics, Inc. and Systematics Financial Services, Inc.) and Brenton Banks Services Corp. (formerly Brenton Information Systems, Inc.). This Twelfth Amendment to Data Processing Agreement is incorporated by reference from Form 10-Q of Brenton Banks, Inc. for the quarter ended September 30, 1995. 31 Exhibit 10.28 Thirteenth Amendment to Data Processing Agreement dated December 1, 1995, by and between ALLTEL Financial Information Services, Inc. (formerly Systematics Financial Services, Inc.) and Brenton Bank (formerly Brenton Banks Services Corp.). This Thirteenth Amendment to Data Processing Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1995. Exhibit 11 Statement of computation of earnings per share. Exhibit 12 Statement of computation of ratios. Exhibit 13 The Appendix to the Proxy Statement for Brenton Banks, Inc., for the 1996 calendar year. Exhibit 21 Subsidiaries. Exhibit 23 Consent of KPMG Peat Marwick LLP to the incorporation of their report dated February 7, 1997, relating to certain consolidated financial statements of Brenton Banks, Inc. into the Registration Statement on Form S-8 of Brenton Banks, Inc. Exhibit 27 Financial Data Schedule (filed only with Electronic Transmission). The Parent Company will furnish to any shareholder upon request a copy of any exhibit upon payment of a fee of $.50 per page. Requests for copies of exhibits should be directed to Steven T. Schuler, Chief Financial Officer/Treasurer/Secretary, at Brenton Banks, Inc., P.O. Box 961, Des Moines, Iowa 50304-0961. (b) Reports on Form 8-K: No reports on Form 8-K were required to be filed during the last quarter of 1996. 32 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BRENTON BANKS, INC. By /s/ C. Robert Brenton Chairman of the Board of Directors C. ROBERT BRENTON Date: March 13, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ C. Robert Brenton Chairman of the Board and Director C. ROBERT BRENTON Principal Executive Officer Date: March 13, 1997 By /s/ Robert L. DeMeulenaere President and Director ROBERT L. DEMEULENAERE Principal Executive Officer Date: March 13, 1997 33 By /s/ Steven T. Schuler Chief Financial Officer/Treasurer/Secretary STEVEN T. SCHULER Chief Financial Officer Chief Accounting Officer Date: March 13, 1997 BOARD OF DIRECTORS By /s/ William H. Brenton WILLIAM H. BRENTON Date: March 13, 1997 By /s/ Junius C. Brenton JUNIUS C. BRENTON Date: March 13, 1997 By /s/ R. Dean Duben R. DEAN DUBEN Date: March 13, 1997 By /s/ Hubert G. Ferguson HUBERT G. FERGUSON Date: March 13, 1997 By /s/ Gary M. Christensen GARY M. CHRISTENSEN Date: March 13, 1997 34 EXHIBIT INDEX Exhibits Page Exhibit 3 The Articles of Incorporation, as amended, and Bylaws, as amended, of Brenton Banks, Inc. These Articles of Incorporation and Bylaws are incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1993. . . . . . . . . . . . . . . . . . 40 Exhibit 10.1 Summary of the Company's Bonus Plans under which some of the executive officers of the Company and certain other personnel of the subsidiaries are eligible to receive a bonus each year. . . . . . . . . . . . . . . . 41 Exhibit 10.2 1996 Stock Option Plan, Administrative Rules and Agreement under which officers of the Company are eligible to receive options to purchase an aggregate of 550,000 shares of the Company's $5 par value common stock. This 1996 Stock Option Plan, Administrative Rules and Agreement is incorporated by reference from Form 10-Q of Brenton Banks, Inc. for the quarter ended September 30, 1996. . . . . . . . . . . . . . . . . . . . 43 Exhibit 10.3 Directors' Incentive Plan. This Directors' Incentive Plan is incorporated by reference from Form 10-Q of Brenton Banks, Inc. for the quarter ended September 30, 1995.. . . . . . . . . . . . . . . . . . . . . . . . . . 44 Exhibit 10.4 Employment Agreement, dated July 6, 1989, between William H. Brenton and Brenton Banks, Inc. This Employment Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1994.. . . . . . . . . . . . . . . . . . . . . . . . . . 45 Exhibit 10.5 Non-Qualified Stock Option Plan, Administrative Rules and Agreement under which officers of the Company are eligible to receive options to purchase an aggregate of 330,000 shares of the Company's $5 par value common stock. This Non-Qualified Stock Option Plan, Administrative Rules and Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1992. . . . . . . . . . . . . . . 46 35 Exhibit 10.6 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1994, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. This Long-Term Stock Compensation Plan, Agreements and related documents are incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1994.. . . . . . . . . . . . 47 Exhibit 10.7 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1993, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. This Long-Term Stock Compensation Plan, Agreements and related documents are incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1993. . . . . . . . . . . .. 48 Exhibit 10.8 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1995, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. This Long-Term Stock Compensation Plan, Agreements and related documents are incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1995.. . . . . . . . . . . . . . . 49 Exhibit 10.9 Standard Agreement for Advances, Pledge and Security Agreement between Brenton Banks and the Federal Home Loan Bank of Des Moines. This Standard Agreement for Advances, Pledge and Security Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1993.. . . . . . . . . . . . . . . . . . . . 50 Exhibit 10.10 Short-term note with American National Bank & Trust Company of Chicago as of April 30, 1996, setting forth the terms of the Parent Company's $2,000,000 short-term debt agreement. . . . . . . . . . . . . . . . . . . . .. 51 Exhibit 10.11 Data Processing Agreement dated December 1, 1991 by and between ALLTEL Financial Information Services, Inc., (formerly Systematics, Inc.) and Brenton Bank (formerly Brenton Insurance Systems, Inc.). . . . . . . . . . . . . 55 Exhibit 10.12 Correspondent Services Agreement dated November 13, 1996 between Brenton Bank and the Federal Home Loan Bank of Des Moines. . . . . . . . . . . . . . . . . . . . . . . . 124 36 Exhibit 10.13 Adoption Agreement #003 - Nonstandardized Code Section 401(k) Profit Sharing Plan, effective November 14, 1996. .142 Exhibit 10.14 Indenture Agreement with respect to Capital Notes dated April 12, 1993. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1993. . . . . . . . . . . . . . . 183 Exhibit 10.15 Indenture Agreement with respect to Capital Notes dated April 14, 1992. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1992. . . . . . . . . . . . . . . 184 Exhibit 10.16 Indenture Agreement with respect to Capital Notes dated March 27, 1991. . . . . . . . . . . . . . . . . . . . . ..185 Exhibit 10.17 Indenture Agreement with respect to Capital Notes dated August 5, 1991. . . . . . . . . . . . . . . . . . . 204 Exhibit 10.18 Indenture Agreement with respect to Capital Notes dated April 8, 1994. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1994.. . . .. 219 Exhibit 10.19 Indenture Agreement with respect to Capital Notes dated April 10, 1995. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1995.. . . . 220 Exhibit 10.20 Indenture Agreement with respect to Capital Notes dated April 10, 1996.. . . . . . . . . . . . . . . . . . 221 Exhibit 10.21 Split Dollar Insurance Agreement between the Company, William H. Brenton Crummy Trust and William H. Brenton Crummy Trust II, dated November 23, 1994. This Split Dollar Insurance Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1994.. . . . . . . . . . . . . . . . . . . . 223 37 Exhibit 10.22 Split Dollar Insurance Agreement between the Company and Brenton Life Insurance Trust for the benefit of C. Robert Brenton, dated August 12, 1994. This Split Dollar Insurance Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1994. . . . . . . . . . . . . . . . . . . . 224 Exhibit 10.23 Split Dollar Insurance Agreement between the Company and Brenton Life Insurance Trust for the benefit of Junius C. Brenton, dated January 12, 1997.. . . . . . . . 225 Exhibit 10.24 Agreement between Robert L. DeMeulenaere and the Company regarding the change in control arrangements, dated December 31, 1994. This Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1994. . . . . . . . . . . . . 237 Exhibit 10.25 Agreement between Larry A. Mindrup and the Company regarding the change in control arrangements, dated December 31, 1994. This Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1994. . . . . . . . . . . . . . . 238 Exhibit 10.26 Agreement between Norman D. Schuneman and the Company regarding the change in control arrangements, dated December 31, 1994. This Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1995. . . . . . . . . . . . . . . 239 Exhibit 10.27 Twelfth Amendment to Data Processing Agreement dated July 1, 1995, by and between ALLTEL Financial Information Services, Inc. (formerly Systematics, Inc. and Systematics Financial Services, Inc.) and Brenton Banks Services Corp. (formerly Brenton Information Systems, Inc.). This Twelfth Amendment to Data Processing Agreement is incorporated by reference from Form 10-Q of Brenton Banks, Inc. for the quarter ended September 30, 1995. . . . . . . . . . . . 240 Exhibit 10.28 Thirteenth Amendment to Data Processing Agreement dated December 1, 1995, by and between ALLTEL Financial Information Services, Inc. (formerly Systematics Financial Services, Inc.) and Brenton Bank (formerly Brenton Banks Services Corp.). This Thirteeneth Amendment to Data Processing Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1995. . . . . . . . . . . . . . . . . . . . .. 241 38 Exhibit 11 Statement of computation of earnings per share. . . . . . . 242 Exhibit 12 Statement of computation of ratios. . . . . . . . . . . . . 244 Exhibit 13 The Appendix to the Proxy Statement for Brenton Banks, Inc. for the 1996 calendar year. . . . . . . . . . . . . . 248 Exhibit 21 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . 286 Exhibit 23 Consent of KPMG Peat Marwick LLP to the incorporation of their report dated February 7, 1997, relating to certain consolidated financial statements of Brenton Banks, Inc. into the Registration Statement on Form S-8 of Brenton Banks, Inc. . . . . . . . . . . . . . . . . . . 288 Exhibit 27 Financial Data Schedule (filed only with Electronic Transmission). . . . . . . . . . . . . . . . . . . . . . . 290 39 EX-3 2 Exhibit 3 The Articles of Incorporation, as amended, and Bylaws, as amended, of Brenton Banks, Inc. These Articles of Incorporation and Bylaws are incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1993. 40 EX-10.1 3 Exhibit 10.1 Summary of the Company's Bonus Plans under which some of the executive officers of the Company and certain other personnel of the subsidiaries are eligible to receive a bonus each year. 41 1996 BRENTON BANKS, INC. BONUS PLANS For 1996, the Company (Brenton Banks, Inc. and Subsidiaries) has bonus plans that cover executive officers, line of business managers, subsidiary presidents, senior managers, market managers, and other key personnel. The following chart summarizes the main features of these bonus plans: Bonus potential (as percent of base pay): Executive officers 30.00% Line of business managers and subsidiary presidents 30.00% Market managers 30.00% Senior manager and other key personnel 15.00% to 30.00% Bonus thresholds: Bonus achievement is tied to a consolidated earnings threshold of $14,000,000 whereby no bonus will be paid if this earnings threshold is not achieved. Bonus criteria: Once the bonus threshold is achieved, bonus amounts are paid for achievement of certain pre-established financial and personal goals, the most significant of which are as follows: Consolidated net income Subsidiary or line of business net income Sales goals Growth in loans Growth in core deposits Fee income generation Non-interest income Non-interest expense Key personal objectives Bonus achievements: Bonus amounts are earned ratably based on actual results compared to a bonus achievement matrix. 41 EX-10.2 4 Exhibit 10.2 1996 Stock Option Plan, Administrative Rules and Agreement under which officers of the Company are eligible to receive options to purchase an aggregate of 550,000 shares of the Company's $5 par value common stock. This 1996 Stock Option Plan, Administrative Rules and Agreement is incorporated by reference from Form 10-Q of Brenton Banks, Inc. for the quarter ended September 30, 1996. 43 EX-10.3 5 Exhibit 10.3 Directors' Incentive Plan. This Directors' Incentive Plan is incorporated by reference from Form 10-Q of Brenton Banks, Inc. for the quarter ended September 30, 1995. 44 EX-10.4 6 Exhibit 10.4 Employment Agreement, dated July 6, 1989, between William H. Brenton and Brenton Banks, Inc. This Employment Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1994. 45 EX-10.5 7 Exhibit 10.5 Non-Qualified Stock Option Plan, Administrative Rules and Agreement under which officers of the Company are eligible to receive options to purchase an aggregate of 330,000 shares of the Company's $5 par value common stock. This Non-Qualified Stock Option Plan, Administrative Rules and Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1992. 46 EX-10.6 8 Exhibit 10.6 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1994, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. This Long-Term Stock Compensation Plan, Agreement and related documents are incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1994. 47 EX-10.7 9 Exhibit 10.7 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1993, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. This Long-Term Stock Compensation Plan, Agreements and related documents are incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1993. 48 EX-10.8 10 Exhibit 10.8 Long-Term Stock Compensation Plan, Agreements and related documents, effective for 1995, under which certain of the Company's senior officers and bank presidents are eligible to receive shares of Brenton Banks, Inc. stock based upon their service to the Company and Company performance. This Long-Term Stock Compensation Plan, Agreements and related documents are incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1995. 49 EX-10.9 11 Exhibit 10.9 Standard Agreement for Advances, Pledge and Security Agreement between Brenton Banks and the Federal Home Loan Bank of Des Moines. This Standard Agreement for Advances, Pledge and Security Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1993. 50 EX-10.10 12 Exhibit 10.10 Short-term note with American National Bank & Trust Company of Chicago as of April 30, 1996 setting forth the terms of the Parent Company's $2,000,000 short-term debt agreement. 51 American National Bank and Trust Company of Chicago 33 North LaSalle Street/Chicago, Illinois 60690/(312) 661-5000 April 30, 1996 Brenton Banks, Inc. Capital Square 400 Locust Des Moines, Iowa 50304 Gentlemen: This letter will replace the previous Letter Agreement regarding the negative pledge on Brenton Bank stock dated April 30, 1995. This letter is in reference to the certain Promissory Note dated 4/30/96, both by Brenton Banks, Inc. ("Brenton") in favor of American National Bank and Trust Company of Chicago ("ANB") in connection with a commitment in the amount of $2,000,000 to be extended by ANB to Brenton and any subsequent renewals and modification ("Commitment"). In consideration of ANB providing the Commitment, Brenton hereby covenants that it will not create, assume or suffer to exist, any Lien upon the stock of a Subsidiary bank. For the purpose of this Letter Agreement, the following definitions shall apply: "Lien" shall mean any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction). "Subsidiary" shall mean a corporation with respect to which more than 50% of the outstanding shares of stock of each class having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) is at the time owned by Brenton or by one or more Subsidiaries of Brenton. 52 American National Bank Page 2 April 30, 1996 If the foregoing correctly states your understanding of our agreement, please execute the enclosed copy of the Letter Agreement in the space indicated and return it to Catherine Bunch, Assistant Vice President of ANB. American National Bank and Trust Company of Chicago By: ____________________________ Its:____________________________ Accepted and agreed to this 30th day of April, 1996. Brenton Banks, Inc. By: /s/ Steven T. Schuler Its: CFO/Treasurer/Secretary 53 PROMISSORY NOTE (UNSECURED) PROMISSORY NOTE (UNSECURED) Chicago, Illinois April 30, 1996 $2,000,000.00 Due April 30, 1997 FOR VALUE RECEIVED the undersigned (jointly and severally if more than one) ("Borrower"), promises to pay to the order of AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO ("Bank"), at its principal place of business in Chicago, Illinois or such other place as Bank may designate from time to time hereafter, the principal sum of Two Million and 00/100 Dollars, or such lesser principal sum as may then be owed by Borrower to Bank hereunder. Borrower's obligations and liabilities to Bank under this Note ("Borrowers Liabilities") shall be due and payable on April 30, 1997. The unpaid principal balance of Borrower's Liabilities due hereunder shall bear interest from the date hereof until paid, computed as follows (DELETE INAPPLICABLE PROVISIONS): (i)XXXXX (ii) at a daily rate equal to the daily rate equivalent of 0% per annum (computed on the basis of a 360-day year and actual days elapsed) in excess of the rate of interest announced or published publicly from time to time by Bank as its prime or base rate of interest (the "Base Rate"); provided, however, that in the event that any of Borrower's Liabilities are not paid when due, the unpaid amount of Borrower's Liabilities shall bear interest after the due date until paid at a rate equal to the sum of the rate that would otherwise be in effect plus 3%. If the rate of interest to be charged by Bank to Borrower hereunder is that specified in clause (ii) above, such rate shall fluctuate hereafter from time to time concurrently with, and in an amount equal to, each increase or decrease in the Base Rate, whichever is applicable. Accrued interest shall be payable by Borrower to Bank on the same day of each (delete inapplicable provision): (i) month, XXXX, and at maturity, commencing with the last day of May, 1996, or as billed by Bank to Borrower, at Bank's principal place of business, or at such other place as Bank may designate from time to time hereafter. After maturity, accrued interest on all of Borrower's Liabilities shall be payable on demand. Borrower warrants and represents to Bank that Borrower shall use the proceeds represented by this Note solely for proper business purposes, and consistently with all applicable laws and statutes. Any deposits or other sums at any time credited by or payable or due from Bank to Borrower, or any monies, cash, cash equivalents, securities, instruments, documents or other assets of Borrower in the possession or control of bank or its bailee for any purpose, may be reduced to cash and applied by Bank to or setoff by Bank against Borrower's Liabilities. The occurrence of any one of the following events shall constitute a default by the Borrower ("Event of Default") under this Note: (a) if Borrower fails pay any of Borrower's Liabilities when due and payable or declared due and payable (whether by scheduled maturity, required payment, acceleration, demand or otherwise); (b) if Borrower or any guarantor of any of Borrower's Liabilities fails or neglects to perform, keep or observe any term, provision, condition, covenant, warranty, or representation contained in this Note; (c) occurrence of a default or an event of default under any agreement, instrument or document heretofore, now or at any time hereafter delivered by or on behalf of Borrower to Bank; (d) occurrence of a default or an event of default under any agreement, instrument or document heretofore, now or at any time hereafter delivered to Bank by any guarantor of Borrower's Liabilities or any person or entity which has granted to Bank a security interest or lien in and to some or all such person's or entity's real or personal property to secure the payment of Borrower's Liabilities; (e) if any of Borrower's assets are attached, seized, subjected to a writ, or are levied upon or become subject to any lien or come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors; (f) if a notice of lien, levy or assessment is filed of record or given to Borrower with respect to all or any of Borrower's assets by any federal, state or local department or agency; (g) if Borrower or any guarantor of Borrower's Liabilities becomes insolvent or generally fails to pay or admits in writing its inability to pay debts as they become due, if a petition under Title 11 of the United States Code or any similar law or regulation is filed by or against Borrower or any such guarantor, if Borrower or any such guarantor shall make an assignment for the benefit of creditors, if any case or proceeding is filed by or against Borrower or any such guarantor for its dissolution or liquidation, or if Borrower or any such guarantor is enjoined, restrained or in any way prevented by court order from conducting all or any material part of its business affairs; (h) the death or incompetency of Borrower or any guarantor of Borrower's Liabilities, or the appointment of a conservator for all or any portion of Borrower's assets; (i) the revocation, termination or cancellation of any guaranty of Borrower's Liabilities without written consent of Bank; (j) if a contribution failure occurs with respect to any pension plan maintained by Borrower or any corporation, trade or business that is, along with Borrower, a member of a controlled group of corporations or a controlled group of trades or businesses (as described in Sections 414(b) and (c) of the Internal Revenue Code of 1986 or Section 4001 of the Employee Retirement Income Security Act of 1974, as amended, "ERISA") sufficient to give rise to a lien under Section 302(f) of ERISA; (k) if Borrower or any guarantor of Borrower's Liabilities is in default in the payment of any obligations, indebtedness or other liabilities to any third party and such default is declared and is not cured within the time, if any, specified therefor in any agreement governing the same; (l) if any material statement, report or certificate made or delivered by Borrower, any of Borrower's partners, officers, employees or agents or any guarantor of Borrower's Liabilities is not true and correct; or (m) if Bank is reasonably insecure. Upon the occurrence of an Event of Default, at Bank's option, without notice by Bank to or demand by Bank of Borrower, all of Borrower's Liabilities shall be immediately due and payable. All of Bank's rights and remedies under this Note are cumulative and non-exclusive. The acceptance by Bank of any partial payment made hereunder after the time when any of Borrower's Liabilities become due and payable will not establish a custom or waive any rights of Bank to enforce prompt payment hereof. Bank's failure to require strict performance by Borrower of any provision of this Note shall not waive, affect or diminish any right of Bank thereafter to demand strict compliance and performance therewith. Any waiver of an Event of Default hereunder shall not suspend, waive or affect any other Event of Default hereunder. Borrower and every endorser waive presentment, demand and protest and notice of presentment, protest, default, non-payment, maturity, release, compromise, settlement, extension or renewal of this Note, and hereby ratify and confirm whatever Bank may do in this regard. Borrower further waives any and all notice or demand to which Borrower might be entitled with respect to this Note by virtue of any applicable statute or law (to the extent permitted by law). Borrower agrees to pay, immediately upon demand by Bank, any and all costs, fees and expenses (including reasonable attorneys' fees, costs and expenses) incurred by Bank (i) in enforcing any of Bank's rights hereunder, and (ii) in representing Bank in any litigation, contest, suit or dispute, or to commence, defend or intervene or to take any action with respect to any litigation, contest, suit or dispute (whether instituted by Bank, Borrower or any other person) in any way relating to this Note or Borrower's Liabilities, and to the extent not paid the same shall become part of Borrower's Liabilities. This Note shall be deemed to have been submitted by Borrower to Bank and to have been made at Bank's principal place of business. This Note shall be governed and controlled by the internal laws of the State of Illinois and not the law of conflicts. Advances under this Note may be made by Bank upon oral or written request of any person authorized to make such requests on behalf of Borrower ("Authorized Person"). Borrower agrees that Bank may act on requests which Bank in good faith believes to be made by an Authorized Person, regardless of whether such requests are in fact made by an Authorized Person. Any such advance shall be conclusively presumed to have been made by Bank to or for the benefit of Borrower. Borrower does hereby irrevocably confirm, ratify and approve all such advances by Bank and agrees to indemnify Bank againsts any and all losses and expenses (including reasonable attorneys' fees) and shall hold Bank harmless with respect thereto. TO INDUCE BANK TO ACCEPT THIS NOTE, BORROWER IRREVOCABLY AGREES THAT, SUBJECT TO BANK'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS NOTE SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST BORROWER BY BANK IN ACCORDANCE WITH THIS PARAGRAPH. BORROWER IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, COUNTERCLAIM OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN CONNECTION WITH THIS NOTE OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH, OR (II) ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS NOTE OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT, AND AGREES THAT ANY SUCH ACTION, SUIT, COUNTERCLAIM OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. Brenton Banks, Inc. Brenton Banks, Inc. 400 Locust, Box 961 By: /s/ Robert L. DeMeulenare (signature) Des Moines, IA 50304 Its: LEFT BLANK (title) Address By: /s/ Steven T. Schuler (signature) FEIN or SSN Its: CFO/Treasurer/Secretary (title) 54 EX-10.11 13 Exhibit 10.11 Data Processing Agreement dated December 1, 1991 by and between ALLTEL Financial Information Services, Inc., (formerly Systematics, Inc.) and Brenton Bank (formerly Brenton Information Systems, Inc. 55 DATA PROCESSING AGREEMENT by and between SYSTEMATICS FINANCIAL SERVICES, INC. and BRENTON INFORMATION SYSTEMS, INC. December 1, 1991 TABLE OF CONTENTS 1. Services 1 2. Term 1 3. Responsibilities of the Parties 1 3.1 Computer Equipment 2 3.2 Terminals/Communications Cost 2 3.3 Processing Schedule 2 3.4 Client Approval of Program Changes 2 3.5 Confidentiality of Client Data 2 3.6 Delivery 2 3.7 Supplies and Forms 2 3.8 Client's Input Data 3 4. Data Processing Premises and Security 3 4.1 Data Processing Premises 3 4.2 Security Standards 3 5. Software 3 5.1 Additional Licensed Programs 4 5.2 Software Warranty 4 5.3 User Manuals 4 5.4 Third Party Software 4 5.5 Installation of New Systems and Subsystems 5 5.6 Modifications Requested by Client 5 5.7 Regulatory Reporting Requirements 5 6. Education 5 7. Staffing; Computer Use 6 7.1 Resident Technical Staff 6 7.2 Special Computer Use 7 8. Time of Performance 7 9. Performance Standards and Penalties 8 9.1 Performance Benchmarks 8 9.2 On-Time Delivery - Output to Client 8 9.3 On-Time Delivery - Input from Client 8 9.4 On-Line Uptime 8 9.5 On-Line Response Time 8 9.6 Remedies 9 9.7 Force Majeure 9 9.8 Exclusive Remedy 9 10. Termination 10 10.1 Right to Terminate 10 10.2 Method of Termination 10 10.3 Data, Systems and Programs 10 10.4 Early Termination 10 11. Transitional Cooperation 11 11.1 Offer of Employment 11 11.2 Transition 11 11.3 Equipment 11 11.4 Additional Support 11 12. Backup Files, Storage and Programs 11 12.1 Files and Programs 11 12.2 Storage 12 12.3 Disaster Recovery 12 12.4 Emergency Backup 12 13. Service Bureau Customers 13 13.1 Client's Service Bureau Customers 13 13.2 SI's Service Bureau Customers 13 14. Effective Planning and Communication 13 14.1 Steering Committee 13 14.2 Audit Conference 13 14.3 Annual Executive Review 14 15. Payment and Billing 14 16. No Interference with Contractual Relationship 15 17. No Waiver of Default 15 18. Processing Priorities 15 19. Mergers and Acquisitions 15 20. Entire Agreement 15 21. Assignment 16 22. Confidential Agreement 16 23. Taxes 16 24. Independent Contractor 16 24.1 Client Supervisory Powers 17 24.2 SI's Employees 17 24.3 SI as an Agent 17 24.4 Workers Compensation 17 25. Client and SI Employees 17 26. Previous Liabilities 17 27. Notices 18 28. Covenant of Good Faith 18 29. Limitation of Liability 18 30. Insurance 18 31. Section Titles 18 32. Counterparts 18 33. Financial Statements 19 34. Governing Law 19 EXHIBITS A. Systems Installation Schedule B. Reports C. Charges D. Reporting Schedule E. Equipment F. Client-Furnished Equipment and Software G. Software License Agreement H. Disaster Recovery Agreement I. Insurance Coverage DATA PROCESSING AGREEMENT This is an Agreement, dated as of the 1st day of December, 1991 (hereinafter the "Effective Date"), by and between SYSTEMATICS FINANCIAL SERVICES, INC., an Arkansas corporation, 4001 Rodney Parham Road, Little Rock, Arkansas 72212-2496 (hereinafter "SI") and BRENTON INFORMATION SYSTEMS, INC. Capital Square, Suite 300 Des Moines, Iowa 50304-0961 (hereinafter "Client"). In consideration of the payments to be made and services to be performed hereunder, the parties agree as follows: 1. Services. SI will provide to Client the data processing services and products described in this Agreement and its exhibits. Such services and products include, but are not limited to, the general management of Client's data processing, installation and enhancement of SI-developed software systems, operation of software systems developed by SI and third parties, programming services, furnishing and operating computer equipment, providing information in various media forms, and a license to use SI software systems. The specific services provided and the applicable fees therefor are described in more detail in this Agreement and its Exhibits. 2. Term. The term of this Agreement is five (5) years, beginning on the Effective Date reflected above. The end of such term shall be the "Expiration Date". At least nine (9) months prior to the Expiration Date, SI will submit to Client a written proposal for renewal of this Agreement. Client will respond to such proposal within ninety (90) days following receipt thereof. 3. Responsibilities of the Parties. SI and Client agree to be responsible for the following matters: 3.1 Computer Equipment. Except as otherwise provided in this Agreement (see Exhibit F and Section 2 of Exhibit C), SI will supply all CPUs, communications controllers, DASD equipment, tape/cartridge equipment, printers and related peripheral equipment which may be required for its operation of the Data Center as defined in Section 4.1. 3.2 Terminals/Communications Cost. Client will pay all costs of installing and utilizing communication or telephone lines, data sets, modems, ATMs, terminals, and terminal control units, as required for Client's on-line operations, testing and training. SI will provide the terminals and personal computers used by its personnel. Client will provide all personal computers used by its personnel. 3.3 Processing Schedule. SI will process and update Client's data in accordance with Exhibit D. 3.4 Client Approval of Program Changes. All changes to programs used to process Client's data affecting input, output, control, audit, or accounting procedures of Client shall be made only with the approval of Client. 3.5 Confidentiality of Client Data. All information concerning Client, its business or customers submitted to SI pursuant to this Agreement shall be held in confidence by SI and shall not be disclosed. No person or entity shall be permitted to have access to Client's data without the written authorization of Client. All of Client's data shall be available for examination by Client, at any time during regular business hours, without notice. If SI receives any legal process requiring it to produce Client's data or that of any of its customers, SI shall notify Client promptly, and deliver copies of such orders to Client, immediately and prior to compliance with such process. SI recognizes Client's absolute ownership of Client information and hereby releases, in advance, any claim, lien, or encumbrance with respect thereto. SI agrees that it shall not, in any event, retain or attempt to retain any Client information in an attempt to secure performance by Client of any of the terms or conditions of this Agreement. 3.6 Delivery. Client, or its designee, is responsible for delivery of all input and output data to and from the Data Center (see Section 4.1). Subject to Client's responsibility for microfilming MICR documents prior to delivery to SI, SI is responsible for safekeeping Client's documents while in SI's possession in the Data Center. 3.7 Supplies and Forms. SI will provide all magnetic tapes, tape cartridges and impact printer ribbons required to perform SI's processing responsibilities during the term of this Agreement. Client will provide all input and output forms, balance control forms, stock paper, and any forms necessary for SI to meet the processing requirements of Client, as well as adequate storage therefor. 3.8 Client's Input Data. All magnetic tapes and input data furnished by Client to SI shall be in machine readable condition, accompanied by control totals. Client assumes all risk of loss and expenses of reconstruction of input data, except for loss caused by SI's negligence. 4. Data Processing Premises and Security. 4.1 Data Processing Premises. Client agrees to provide SI with adequate premises, in good repair, to perform its responsibilities under this Agreement (hereinafter the "Data Center") and to provide data processing facilities to Bankers Trust, Inc. and its correspondents (up to 1350 square feet for programmers and CSR's). Without limiting the generality of the foregoing, Client agrees to supply water, sewer, heat, lights, telephone lines and equipment, air conditioning, electricity (including, if desired by Client, an uninterruptable power system, battery backup and backup generator capacity) and daily janitorial services. SI is not responsible for any injury or damage to property or persons which occurs in or around the data center unless it is caused by the negligent or willful misconduct of SI. Client will provide telephone instruments and telephone service for SI to communicate with the employees of Client, Client's service bureau customers, if any, and as required by SI to operate the Data Center. These instruments and service may be part of a Client system used by Client personnel. 4.2 Security Standards. SI will adhere to such security standards with respect to Client's data as may reasonably be imposed by Client, including prehiring personnel investigative procedures and discharge of personnel. Client will pay the costs for any modifications or additions to the data center which are required by such security standards. Client will reimburse SI for actual costs incurred if adherence to security standards requested or required by Client increases SI's costs of operation. 5. Software. Effective on the Expiration Date (or the earlier Termination Date if this Agreement is terminated by Client pursuant to the provisions of Section 9.2), SI will grant and convey to Client and Client will accept a license to use SI's proprietary application systems ("Software") listed in Exhibit A, under the terms and conditions set forth in Exhibit G. However, such software license shall be effective for only that Software delivered to Client during the term of this Agreement. Client shall be entitled to obtain other SI-developed software programs upon the execution of a mutually acceptable license agreement. 5.1 Additional Licensed Programs. The license contemplated by this Section 5 shall also apply to all SI-developed program modifications, enhancements, new systems or major subsystems installed for Client's benefit pursuant to this Agreement. SI will furnish Client, upon request, a current list of all Software systems and subsystems developed and made available by SI. SI will give Client ninety (90) days' notice prior to eliminating updates for a particular system version of any SI-developed program. 5.2 Software Warranty. Each of the warranties set forth in Exhibit G, as well as the patent and trademark indemnity provisions of Exhibit G, shall apply to the Software, and all enhancements, modifications or changes thereto, furnished or used pursuant to this Agreement. 5.3 User Manuals. Prior to the installation of each Software system, SI will deliver to Client two copies of the applicable User Manuals, and thereafter, two copies of standard updates thereto. Client is responsible for the initial personalization and for the maintenance, reproduction and distribution of User Manuals. SI hereby consents to the reproduction of User Manuals by Client solely for the internal use of Client in accordance with this Agreement. 5.4 Third Party Software. SI will use all computer programs acquired by Client from third parties or developed by Client without the assistance of SI exclusively to process Client's data. Additional use of such programs by SI shall require the written approval of Client. SI reserves the right to review and/or test such programs, in advance of processing, to assure compatibility with SI equipment and consistency with SI's processing techniques. The Resident Staff (see Section 7.1) will provide support and maintenance services with respect to such programs. Client may purchase maintenance contracts for such programs in its discretion. Client will indemnify SI and hold SI harmless from any loss, claim, damage or expense, including reasonable attorneys' fees, resulting from any action brought or claim made by any third party claiming superior title or right to protection of proprietary information in respect of any such programs. SI shall observe and abide by all provisions relating to confidentiality and proprietary information contained in the License Agreement covering third party software being used by SI pursuant to this Section. 5.5 Installation of New Systems and Subsystems. SI will install regulatory changes, updates, new systems and subsystems using the Resident Staff. SI will present to Client the features of and estimated hours required to install such systems or subsystems. Client, at its option, may elect to install the new system or subsystem or to continue use of the then installed SI-developed system. Client will make every reasonable effort to install new releases of SI-developed systems as soon as possible after the new releases are made available to the data center. 5.6 Modifications Requested by Client. If requested by Client, SI agrees to modify the SI-developed programs installed for Client by SI. Implementation of such Client-authorized modifications will be performed by the Resident Staff. Client understands that modifications may require an increase in the time of performance and/or the Resident Staff to subsequently install SI-developed updates, new systems or subsystems. Client will endeavor to minimize the need for such modifications by standardizing functions within holding company banks and making more effective use of standard software functions. 5.7 Regulatory Reporting Requirements. During the term of this Agreement, SI agrees to modify those SI-developed programs installed for Client so that such programs will comply with the mandatory data processing output requirements specified by federal regulatory authorities applicable to Client. Program modifications necessary to meet state and local regulatory requirements will be provided at Client's request by the Resident Staff. Client agrees to make SI aware of any local or state regulatory requirements not included in the requirements established by federal regulatory authorities. 6. Education. SI will make available to Client personnel, its standard application software training courses, which are generally held in Little Rock, Arkansas, in accordance with SI's Education and Training Department schedule, a current copy of which will be provided to Client upon request. Client personnel may attend such courses, and any other standard courses generally offered by SI to its other customers, upon payment of SI's then current published course fee, subject to normal space availability requirements and compliance with SI's standard registration and enrollment deadlines and procedures. Client will pay all of its travel and lodging expenses while attending SI courses, whether included in Exhibit A or not. 7. Staffing; Computer Use. 7.1 Resident Technical Staff. SI will provide, the staffing level of technical and analyst personnel set forth in Section 5 of Exhibit C (the "Resident Staff"). Subject to a reasonable time for replacements in the event of resignations or terminations, SI will maintain such staffing levels throughout the term of this Agreement. Duties of the Resident Staff shall include, but are not limited to, maintaining the systems reflected in Exhibit A, installing program updates, installing new systems and subsystems, programming resulting from regulatory changes, user interface, communication and customer service, systems programming, attending education classes, Client meetings and research meetings, as well as Client-requested program modifications and general programming duties. (a) Project Control - The Resident Staff will use a project management system for Client projects, and SI will provide Client with output from such system as frequently as weekly. (b) Priorities - Client shall have the right to establish all programming and project priorities. Changes in priorities, however, which require reassignment of SI Resident Staff to other responsibilities may result in an enlargement of SI's time to complete certain tasks hereunder. (c) Resource Change Procedure - At Client's written request, SI will increase or decrease the Resident Staff, as long as the staffing level is not less than the minimum number set forth in Exhibit C. SI will promptly respond to Client's request with a proposed fee schedule adjustment which shall be reasonable in light of the related costs of salaries, recruiting, relocation, severance (up to 90 days), and employee benefits which are affected thereby, subject to provisions of Exhibit C, Section 5.2. Quotations for increases or decreases in the Resident Staff will be in minimum increments of one person for a minimum term of one year. SI will have up to 120 days to implement agreed changes in the Resident Staff. If a Resident Staff position is vacated for any reason other than a Client request as described in this Section 7.1(c) and remains vacant for more than 120 days, SI shall give Client credit for the salary and benefits (up to 19% of salary) beginning in the fourth month of the vacancy. Such credit shall continue until the position is no longer vacant. (d) Temporary Non-Resident Personnel - If Client does not wish to re-order priorities to permit the Resident Staff to perform additional services, or to direct SI to increase the Resident Staff, Client may request SI to provide additional non-resident personnel on temporary basis and SI will provide such non-resident personnel on an as-available basis. SI will promptly respond with a quotation for such non-resident personnel in accordance with Section 6 of Exhibit C. If Client wishes to utilize the SI personnel services quoted, Client will notify SI in writing, authorizing SI to provide such services. 7.2 Special Computer Use. Client may use any SI computer time which is available in the Data Center, without additional charge, for the exclusive purpose of the performance of non-repetitive services requested by Client or for use with regard to audit functions, provided that Client's requests for SI to provide such non-repetitive services do not interfere with SI's responsibilities under this Agreement. In conjunction with such non-repetitive computer usage, SI will provide a computer operator and Client will pay SI for related overtime, if any, incurred by such computer operator. 8. Time of Performance. The parties agree that timely and accurate submission of input and output is essential to satisfactory performance under this Agreement. SI's time of performance shall be enlarged, if and to the extent reasonably necessary, in the event that: (a) Client fails to submit input data in the prescribed form or in accordance with the schedules set forth in Exhibit D, (b) an act of God, malfunction of any equipment which has been properly maintained and serviced or other cause beyond the control of SI prevents timely data processing hereunder, (c) special requests by Client or any governmental agency authorized to regulate or supervise Client impact SI's normal processing schedule; or (d) if Client fails to provide any equipment, software, premises or performance called for by this Agreement, and the same is necessary for SI's performance hereunder. SI agrees to propose for evaluation and selection by Client a method by which it can most effectively comply with any such request. SI will notify Client of the estimated impact on its processing schedule, if any. In the event of an error in processing Client's data, SI promptly will correct such error. Such correction of error shall be without charge to Client unless caused by the nature of the data submitted by Client or caused by software provided to SI by Client, and only if additional costs are incurred by SI. Client carefully will review and inspect all reports prepared by SI, to balance promptly to the appropriate control totals and within a reasonable time after any error or out-of-balance control totals should be detectable, Client agrees to promptly notify SI of any erroneous processing. If Client fails to so notify SI, it shall be deemed to have waived its rights in respect of such error and to have assumed all risks in respect thereof. 9. Performance Standards and Penalties. 9.1 Performance Benchmarks. The parties agree that timely and accurate submission of input and output is essential to satisfactory performance under this Agreement. The parties acknowledge that the following is a list of acceptable time performance benchmarks. In the event any performance is suspected or deemed unacceptable, Client or SI shall mutually endeavor to research the cause of and initiate action for correction as soon as practical. 9.2 On-Time Delivery - Output to Client. SI agrees to exercise diligence to maintain a monthly average of 97.5% on-time delivery of Client's output reports. SI agrees to submit a written report to Client on monthly basis with the results of the previous month's performance. 9.3 On-Time Delivery - Input from Client. Client agrees to exercise diligence to maintain a monthly average of 97% on-time delivery Client's input data. SI agrees to submit a written report to Client on a monthly basis with the results of the previous month's performance. 9.4 On-Line Uptime. SI agrees to exercise diligence to maintain a monthly average of 98.5% on-line uptime, exclusive of scheduled preventative maintenance, as measured at the SI host computer using SI's on-line software. SI agrees to submit a written report to Client on a montly basis with the results of the previous month's performance. 9.5 On-Line Response Time. SI and Client acknowledge the high relative importance of maintaining mutually acceptable on-line response time for users of Client's on-line terminals. SI and Client agree that such on- line response time (herein defined as the elapsed time between the time inquiries and "entered" at the terminal and the time a related response is "received" by the terminal) can be detrimentally affected by factors or circumstances beyond the control of either SI or Client, and that Client retains responsibility for final decisions regarding the use of line speeds, modems, terminal control units, third party on-line software, and other factors which may materially affect response times. SI will endeavor to maintain an average on-line response time not to exceed five (5) seconds per on-line inquiry and 99% of the responses not to exceed ten (10) seconds. Average response time will be measured at the terminal location by Client, or by SI at the request of the Client. SIMS or other ad hoc file transfers are not subject to this response time benchmark. Down time shall not be considered in measuring on-line response time. In addition to the following, SI agrees to monitor the "host turn-around" time (defined herein as the elapsed time between the time an inquiry is received at the host computer and the time a related response is sent by the host computer), and will endeavor to maintain a monthly average "host turn-around time" of less than one (1) second. Such measurement will be reported to Client monthly. In the event that either "on-line response time" or "host turn-around time" is suspected or deemed to be unacceptable to either Client or SI, then Client and SI shall mutually endeavor to research the cause for such deficiency, including the securing of assitance from Client's communications carriers and communications equipment vendors. 9.6 Remedies. In the event that SI fails to meet the performance benchmarks of 98.5% for on-line up-time set out in Section 9.4 and 97.5% for on-time delivery of output reports as set out in Section 9.1 in any three (3) consecutive months, Client shall have the option to give written notice to SI specifying such failure, within thirty (30) days after the end of the third month. If, after receipt of such notice, SI then fails to meet the standards described above for any three months in the next twelve (12) months after receipt of such notice, then Client shall have the option to terminate this Agreement upon ninety (90) days written notice. 9.7 Force Majeure. All performance benchmarks calculated hereunder shall be adjusted as appropriate if such benchmarks are not met because of causes beyone the control of SI. 9.8 Exclusive Remedy. The parties agree that remedies provided in this Section are the exclusive remedies for failure to meet performance standards established herein. 10. Termination. In addition to the right to terminate under Section 9.6 above, this Agreement may be terminated prior to the Expiration Date, as follows: 10.1 Right to Terminate. In addition to any other rights which either party may have in law or equity, either SI or Client may terminate this Agreement if the defaulting party fails to cure any default hereunder within thirty (30) days of written notice from the other party, specifying the nature and extent of any such default. Termination of this Agreement shall not relieve either party of any liability for any breach of this Agreement prior to the Effective Date of such termination. 10.2 Method of Termination. Exercise of the right to terminate under this Section must be accomplished by specifying in such written notice to the defaulting party, the nature and extent of such default and fixing a date, on the last day of a month, not less than 180 days following the date of receipt of such notice, for cessation of services hereunder (the "Termination Date"). 10.3 Data, Systems and Programs. If this Agreement expires, or if Client terminates by virtue of SI's default, all licensed systems in machine readable form and their related program source and object listings, documentation, instructions or manuals used to process data for Client, shall remain subject to Exhibit G. In addition, upon Client's request, SI agrees to provide to Client copies of Client's data files, records and programs on magnetic media. 10.4 Early Termination. Client may terminate the Agreement, effective on or after two years from the Effective Date of the Agreement, upon satisfaction of each of the following conditions: (a) Client shall have been acquired (as defined herein); (b) within six months after it is acquired Client shall have notified SI in writing of its intention to terminate with such notice providing for a Termination Date not less than twelve (12) months thereafter; and (c) Client shall have paid SI a fee, which shall accompany the foregoing termination notice, equal to twenty percent (20%) of the sum of the fees payable pursuant to this Agreement in respect of the period following the early Termination Date reflected in the foregoing notice, through and including the Expiration Date, with such amount discounted to present value using a discount rate of eight percent (8%) per annum. This fee shall also include termination of the Disaster Recovery Agreement (see Exhibit H). Client and SI agree that this fee may be subject to negotiation if special circumstances exist at the time of termination. 11. Transitional Cooperation. After notice of termination and prior to the Termination Date, or for six months prior to the Expiration Date, SI agrees that: 11.1 Offer of Employment. Client may offer employment to SI's data center employees, except for the account manager. 11.2 Transition. SI will give full cooperation and support to Client to assure an orderly and efficient transition to whatever method of computer processing it may select. 11.3 Equipment. If Client wishes to utilize equipment owned or leased by SI and installed in the data center, SI will not withdraw any such equipment without first offering to Client, on a right of first refusal basis, the right to purchase, or sublease such equipment. With respect to equipment leased by SI, SI will allow (if and to the extent permitted by the underlying lease) Client to sublease such equipment from SI at the exact terms, conditions and costs of the lease then in effect. In addition, Client may purchase at the Expiration Date or Termination Date, as applicable, all but not less than all of the equipment owned by SI and used in the data center, at a price equal to the sum of its net book value or fair market value, whichever is the greater. Such offer will be made by SI at least ninety (90) days and accepted or rejected at least sixty (60) days prior to the Termination Date. Client may, at its option, negotiate directly with any of the owners of leased equipment, to establish its direct contractual relationship for equipment, and Client agrees to act promptly in this regard. 11.4 Additional Support. Client shall have the option, exercisable within ninety (90) days of delivery of a termination notice by either party, to request up to 90 days of additional technical support from SI subsequent to the Termination Date. Client will pay for such services at SI's then current Hourly Rates. 12. Backup, Storage, Files and Programs. 12.1 Files and Programs. SI agrees to provide and maintain adequate backup files on magnetic media of Client data and all programs utilized to process Client's data. 12.2 Storage. Client agrees to provide off-site storage for backup data files and programs. Client agrees to pick up the backup data files and programs from the data center, deliver them to its off-site storage location, store them, and return them to the data center pursuant to mutually agreed upon procedures and schedules. If requested by Client, SI shall provide Client with a quarterly listing of the names of data files and programs for verification of the items in storage. Client is solely responsible for the physical security of such files and programs while not in SI's possession. 12.3 Disaster Recovery. SI's fees expressed herein include Disaster Recovery services (see Exhibit H) at no additional charge. Such arrangements are designed to deal with circumstances which are expected to cause any substantial portion of the capabilities of the data center to be unavailable for a consecutive period exceeding 72 hours. Emergency backup, as referred to below, is designed only for difficulties of a shorter duration. 12.4 Emergency Backup. SI will establish and maintain arrangements for emergency backup data processing for SI's processing commitments to the Client under this Agreement. SI's policies and procedures concerning backup are reflected in SI's Operations Guide. SI does not warrant such backup will be available at the desired time, in sufficient quantities, or in a nearby location. SI will work diligently with Client in an emergency to restore on-line communications, including but not limited to vendor and supplier contact and identification of alternate sites in which emergency computing equipment could be installed. Client will pay all expenses incurred, if any, in connection with emergency processing backup needs. Client will define in writing from time to time the procedures it wishes SI to follow regarding the use of emergency backup, and Client shall have the right, to be exercised in its discretion, to direct SI to utilize such backup capability, provided Client's processing is behind schedule. Notwithstanding the foregoing, SI shall not be liable for any failure, delay or interruption in data processing services pursuant to this Agreement, in whole or in part, due to acts of God, strikes, or threats thereof or force majeure or due to causes beyond the control of SI. Upon written notice from Client, SI agrees to conduct appropriate tests of emergency backup arrangements and Client agrees to pay for all travel, personnel and equipment expenses incurred in connection with such testing. There shall be no additional personnel charge, however, for participation in the testing of such backup arrangements by members of the Resident Staff. Client acknowledges that emergency backup arrangements hereunder do not constitute disaster recovery capabilities (see Section 11.3). 13. Service Bureau Customers. 13.1 Client's Service Bureau Customers. Client may continue to contract with its present service bureau customers, if any, both for existing and new applications. 13.2 SI's Service Bureau Customers. SI may not process data for any third parties, other than Bankers Trust and its correspondents, at the Data Center without written permission from the Client. Such permission, if granted, will be on an individual customer basis and will be valid for the remainder of the contract term, for that customer. If SI processes any SI service bureau customers in the Data Center other than Bankers Trust and its correspondents, SI shall pay Client five percent (5%) of the additional revenue received from such service bureau processing, effective for each such customer with the first month following completion of the related conversions. 14. Effective Planning and Communication. 14.1 Steering Committee. SI and Client agree that effective planning and communication are necessary to provide overall direction for Client's data processing, and that each will work to promote a free and open exchange of information between SI personnel, Client senior management and Client user departments. Members of SI's Data Center management and the Resident Staff may participate actively with Client's management and users in making and implementing day-to-day plans for Client's data processing. In addition, a joint data processing steering committee will be established to facilitate such planning and to encourage a periodic review of priorities and long-term objectives. SI's account manager and programming manager shall be non-voting members of such committee. In addition, if requested by Client, SI's account manager will serve as chairman of the data processing steering committee, and will solicit input from the other members for appropriate agenda items. SI will maintain and distribute copies of minutes of meetings of the data processing steering committee. Client personnel who shall be members of such committee shall include such senior management personnel as Client deems appropriate from time to time. The data processing steering committee shall meet regularly (initially, once per month). 14.2 Audit Conference. SI will cooperate fully with Client or its designee in connection with Client's audit functions or with regard to examinations by regulatory authorities. Client acknowledges that SI is not responsible for providing audit services or for auditing Client's records or data. Following any audit or examination, Client will conduct (in the case of an internal audit), or instruct its external auditors or examiners to conduct an exit conference with SI and, at such time, and as soon as available thereafter, to provide SI with a copy of the applicable portions of each report regarding SI or SI's services (whether draft or final) prepared as a result of such audit or examination. Client also agrees to provide and to instruct its external auditors to provide SI, a copy of the portions of each written report containing comments concerning SI or the services performed by SI pursuant to this Agreement. 14.3 Annual Executive Review. At least once during each contract year of this Agreement, the parties will engage in an Executive Review. Such Executive Review shall be held between the Chief Executive Officers or Presidents of each party and other senior management personnel of each party as designated by the respective Chief Executive Officers or Presidents. Such Executive Review shall be held at a site which is mutually agreeable or may be conducted telephonically, by teleconference or by any means which is mutually agreeable. Each party will bear all its own costs associated with such Executive Review. The parties shall exchange agenda items for such review and each item shall be thoroughly discussed. Such agenda items shall include, but not necessarily be limited to, performance of the parties during the current year, plans and directions of the parties during the upcoming year, technological and other changes which may impact the banking or data processing industries or other forces within the respective industries which will affect the performance of the Agreement by either party. 15. Payment and Billing. Client agrees to pay SI for the services performed hereunder in accordance with the fees set forth in this Agreement, pursuant to invoices prepared and delivered to Client. All processing fees shall be payable on the first day of each month, for services to be rendered during that month except for Additional Volume Fees specified in Section 3.2 of Exhibit C, which shall be reflected in the first monthly invoice after the relevant usage data is available and payable by Client promptly following receipt thereof. 16. No Interference with Contractual Relationship. Client warrants that, as of the date hereof, it is not subject to any contractual obligation that would prevent Client from entering into this Agreement, and that SI's offer to provide such services in no way caused or induced Client to breach any contractual obligation. 17. No Waiver of Default. The failure of either party to exercise any right of termination hereunder shall not constitute a waiver of the rights granted herein with respect to any subsequent default. 18. Processing Priorities. To comply with the requests of applicable bank regulatory authorities, SI agrees that Client's processing will have priority over all other processing in the Data Center. SI agrees that processing for financial institutions shall have priority over processing for non-financial institutions, if any. In addition, if any emergency requires a change in the processing schedule set forth in Exhibit D, SI and Client agree to negotiate in good faith to adjust the processing schedule and related priorities in light of then prevailing circumstances. 19. Mergers and Acquisitions. Upon written request by Client, SI will process additional data resulting from any merger or acquisition involving either Client or any of its service bureau customers; subject to Client's payment of additional volume fees reflected in Section 3 of Exhibit C, and subject to agreement on the fees, if any, applicable to related conversion and testing services. Client will notify SI of any such proposed merger or acquisition as soon as reasonably practicable. 20. Entire Agreement. This Agreement and the exhibits hereto contain the entire agreement of the parties and supersedes all prior agreements whether written or oral with respect to the subject matter hereof. Expiration or termination of any part of this Agreement shall terminate the entire Agreement except for any portion hereof which expressly remains in force and in effect notwithstanding such termination or expiration. Modification or amendment of this Agreement or any part thereof may be made only by written instrument executed by both parties. 21. Assignment. Neither party hereto shall assign, subcontract, or otherwise convey or delegate its rights or duties hereunder to any other party without the prior written consent of the other party to this Agreement, which consent shall provide that it is subject to all the terms and conditions of this Agreement. Subject to the provisions of Exhibit G, no such consent shall be required in the event of a merger, consolidation, sale of substantially all of the assets, or any other change of control of either party hereto, in which event, this Agreement shall apply to, inure to the benefit of, and be binding upon the parties hereto and upon their respective successors in interest. 22. Confidential Agreement. This Agreement is a confidential agreement between SI and Client. In no event may this Agreement be reproduced or copies shown to any third parties by either Client or SI without the prior written consent of the other party, except as may be necessary by reason of legal, accounting or regulatory requirements beyond the reasonable control of SI or Client, as the case may be, in which event SI and Client agree to exercise diligence in limiting such disclosure to the minimum necessary under the particular circumstances. 23. Taxes. Client will pay directly or reimburse SI for all sales, use or excise taxes, however designated, levied or based, on amounts payable pursuant to this Agreement, including state and local privilege or excise taxes based on gross revenues under this Agreement or taxes on services rendered or personal property taxes on the systems licensed hereunder. Client shall not be responsible for any taxes levied on the personal property or net income of SI. Notwithstanding the foregoing, if taxes not currently in effect are imposed upon Client which would not have been applicable to Client in the absence of this Agreement, the foregoing provision shall not be deemed to supersede Client's right, if any, to rescind the Agreement on the basis that it has thereby become so economically burdensome as to alter the essential nature of the Agreement. 24. Independent Contractor. It is agreed that SI is an independent contractor and that: 24.1 Client Supervisory Powers. Client has no power to supervise, give directions or otherwise regulate SI's operations or its employees, except as herein provided for security of Client's data and detection of errors in processing. 24.2 SI's Employees. Persons who process Client's data are employees of SI and SI shall be solely responsible for payment of compensation to such personnel and for any injury to them in the course of their employment. SI shall assume full responsibility for payment of all federal, state and local taxes or contributions imposed or required under unemployment insurance, social security and income tax laws with respect to such persons. 24.3 SI as an Agent. SI is not an agent of Client and has no authority to represent Client as to any matters, except as authorized herein. 24.4 Workers Compensation. Without limiting the generality of the foregoing, SI agrees to maintain, throughout the term of this Agreement, applicable statutory Workers' Compensation insurance with an insurance company authorized to write such insurance in Iowa covering each employee who shall perform any service hereunder. SI shall also require that any sub-contractor engaged by SI to provide services hereunder (a "Sub- contractor") shall also provide applicable statutory Workers' Compensation insurance for its employees. SI also agrees to maintain, throughout the term of this Agreement, employer's liability insurance with a limit of $100,000, with an insurance company authorized to write such insurance in Iowa, and SI shall require each Sub-contractor to maintain such insurance on its employees. 25. Client and SI Employees. Except as specifically set forth in Section 10, above, both Client and SI agree not to offer employment to any employee of the other without the prior written consent of the other. 26. Previous Liabilities. The parties hereto agree to indemnify the other and hold the other harmless against any loss (including attorney's fees and expenses) arising out of any claims or lawsuits filed or subsequently filed as a result of the acts of the other party which occurred prior to the Effective Date of this Agreement. 27. Notices. All notices, requests and demands, other than routine operational communications under this Agreement, shall be in writing and shall be deemed to have been duly given when deposited in the United States mail, registered or certified postage prepaid, and addressed to the other party at the address first shown above and to the attention of the president of said party. Notice of changes of address, if any, shall be given in like manner. 28. Covenant of Good Faith. SI and Client agree that, in their respective dealings arising out of or related to this Agreement, they shall act fairly and in good faith. 29. Limitation of Liability. If either party shall breach any covenant, agreement or undertaking required of it by this Agreement, the parties agree that the liability of the breaching party shall be limited to direct damages caused by said breach, and shall not include any special, indirect or consequential damages. 30. Insurance. A schedule of SI's current insurance coverage has been furnished to Client prior to the Effective Date of this Agreement and is attached hereto as Exhibit I. 31. Section Titles. Section titles as to the subject matter of particular sections herein are for convenience only and are in no way to be construed as part of this Agreement or as a limitation of the scope of the particular sections to which they refer. 32. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument. 33. Audited Financial Statements. Annually, SI will provide to Client a copy of SI's annual financial statements which may be on a consolidated basis. 34. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Iowa. IN WITNESS WHEREOF, this Agreement has been executed by the undersigned officers, thereunto duly authorized, on the 2nd day of January, 1992. SYSTEMATICS FINANCIAL BRENTON INFORMATION SERVICES, INC. SYSTEMS, INC. By: /s/ By: /s/ Name: Collins A. Andrews Name:-Saulene M. Richer Title: Executive Vice Title:-SVP/Marketing & Technology President Date: 1/2/92 Date: 1/2/92 Client: Brenton Information Systems, Inc. Effective Date: December 1, 1991 EXHIBIT "A" APPLICATION SYSTEMS 1. The following systems currently are installed at the Data Center and are being used to process Client's data: 1.1 SYSTEMATICS IMPACS Savings/Time Financial Management System Accounts Payable Real Estate Loans Commercial Loans Installment Credit Central Information File Item Reconciliation SIMS Transaction System Tax System Warehouse Window Transactions On-Line Collections Inter-System Transfer 1.2 NON-SYSTEMATICS Voice Response (Syntellect) E-Mail (MacKinney) Platform Automation (Branch Banker) Atragen Safe Deposit Boxes Optical Disk (Pro-Access) Atchley Systems Compliance (Comply/CTR) System 2. Client may use any SI-developed application system to process Client data. Additional cost may be involved in the installation and/ or use of these applications. Client will not pay additional license fees to use such software. Client: Brenton Information Systems, Inc. Effective Date: December 1, 1991 EXHIBIT "B" REPORTS 1. Current Reports. The reports or output from Client's present systems will be produced by SI during the term of this Agreement, unless such system(s) are replaced in accordance with the terms of this Agreement or by mutual agreement between the parties. 2. SI Reports. Client may select from among the reports available for each of the application systems listed in Exhibit A, as set forth in the standard SI user documentation thereof. 3. Additional Reports. SI will add or delete from either the SI or current reports at Client's request, or to change the frequency of their preparation. If the cumulative effect of changes in requested reports requires personnel and/or computer equipment in excess of that required without such changes, SI agrees to notify Client and prepare a price quotation, based upon the costs of such additional computer equipment. Upon receipt of authorization from Client in writing, SI will immediately proceed to acquire such additional personnel and/or equipment and prepare and deliver all such reports. Client: Brenton Information Systems, Inc. Effective Date: December 1, 1991 EXHIBIT "C" CHARGES 1. Fee Schedule. Client will pay SI, a minimum fee of $10,650,300.00 payable in monthly installments as set forth in the following table: Applicable Period Amount of Monthly Payment Months 1 - 12 $181,091 Months 13 - 24 $179,280 Months 25 - 36 $177,487 Months 37 - 48 $175,712 Months 49 - 60 $173,955 2. Additional Responsibilities of the Parties. Except as otherwise provided, Client and/or its service bureau customer(s) are responsible for the operation of any of its data processing facilities other than the Data Center. Such facilities are hereinafter termed "remote". Client and SI agree to provide or perform their respective responsibilities as indicated in Section 2.1 through 2.4 below and responsibilities of Client's service bureau customer(s) shall be indicated as responsibilities of Client. *This information is considered confidential and has been separately filed with the Commission RESPONSIBILITY FUNCTION CLIENT SI 2.1 Input Processing. Key entry of input (other than MICR) X ___ Key entry Equipment and maintenance X ___ (other than MICR) Key entry of MICR rejects X ___ Key entry equipment and maintenance X ___ for MICR rejects MICR entry computer operation X ___ MICR reader/sorter operation X ___ MICR entry reconciliation X ___ MICR reject reconciliation X ___ MICR "junk letter" key entry X ___ Key entry or encoding of MICR input X ___ Equipment and maintenance for key entry X ___ or encoding of MICR input Microfilming MICR input X ___ Equipment and maintenance for X ___ microfilming MICR input Supplies and development costs for X ___ microfilming MICR input MICR reader/sorter equipment and maintenance X ___ MICR sorter vendor usage fees X ___ Personal computers used by other than SI X ___ Remote MICR capture/printer operations X ___ Remote MICR capture/printer equipment and X ___ maintenance In-line microfilm equipment and operation X ___ 2.2 Output Processing. MICR transit item end point separation X ___ MICR transit cash letter preparation X ___ MICR "on us" fine sort by account number X ___ Bursting ___ X Bursting equipment and maintenance ___ X Decollation ___ X Decollation equipment and maintenance ___ X Check signing X ___ Check signing equipment and maintenance X ___ RESPONSIBILITY FUNCTION CLIENT SI Reports separation by bank ___ X Delivery to courier ___ X Remote printing equipment and maintenance X ___ Tracking inventories of paper stock and forms ___ X 2.3 Non-Mainframe Software. Except as specifically set forth herein, Client will provide and maintain all non-mainframe software. Where SI provides any such software, it is listed above in Exhibit A and the following provisions shall apply: Payment of related license fees X ___ Payment of maintenance and enhancement fees X ___ Modifications necessary for interface with X ___ SI software 2.4 Telecommunications Network Control. SI agrees to: (a) accept reports of network problems and coorindate with all parties involved (including vendors) to obtain a resolution to network problems; (b) work with and coordinate between Client personnel and other data center personnel toward operation of the on-line network to meet reasonable Client needs; and (c) work with and coordinate between Client personnel and other data center personnel in establishing additions and/or making changes to the network. If Client elects to acquire any equipment or software for on-line network monitoring or problem resolution,Client agrees to pay the costs thereof. SI will, from time to time, recommend to Client equipment and software for network monitoring. 3. Additional Volume Fees. The fees expressed in Section 1 of Exhibit C are for processing the applications and base volumes set forth below. Client will pay SI for additional volumes of work processed in accordance with this Section 3. Increased volume may result from internal growth, mergers or acquisitions or a combination thereof. 3.1 Definitions. As used herein, the term "Core Accounts" shall mean the number of accounts on the master file at month-end with respect to the applications marked with an asterisk (*) in Section 3.2 of this Exhibit C. 3.2 Applications Processed and Core Accounts. The following applications will be processed by SI for the fees set forth in this Exhibit C: Core Applications * IMPACS * Demand deposit accounting * Overdraft checking * SAVINGS/TIME DEPOSIT *Savings - Regular *Savings - Golden *Christmas Club *Certificates of deposit *IRA * INSTALLMENT CREDIT * COMMERCIAL LOANS (notes) * COMMERCIAL LOAN (Customers) * REAL ESTATE (mortgage loan notes) * FMS (general ledger) Other Applications Tax System Warehouse System On-Line Collections Item Reconciliation Inter-System Transfer CIF SIMS Transaction System (TS) Voice Response Atchley Systems Compliance (Comply/CTR) Systems SMART Profitability 3.3 Base Volumes and Additional Volume Charges. Client has advised SI that the volume of Core Accounts for Client and its service bureau customers, if any, at November 1, 1991, was 266,097 Core Accounts (the "Base Volume of Core Accounts"). If the sum of the Core Accounts for Client and its service bureau customers exceeds 125% of the Base Volume of Core Accounts, Client will pay SI a monthly amount equal to the product of the number of Core Accounts in excess of 359,230, multiplied by $.21 per accounts. Actual volumes of Core Accounts will be measured on the last day of each month. If actual volume is less than base volume, no additional volume charge will apply; no shortfall shall be cumulative; nor shall any credit apply to any other charge under this Agreement. Client may request SI to quote the incremental cost of processing additional volumes from acquisitions and may, at its option, pay either the incremental cost or .21 per account. Should an acquisition occur that causes Core Accounts to increase more than fifty percent (50%), (i.e., more than 399,146), SI and Client will promptly negotiate in good faith to establish a revised Additional Volume Charge not to exceed $.21 per account. Additional volume charges do not cover fees or expenses, if any, which may be applicable to conversions resulting from acquisitions by Client or its service bureau customers. SI will provide conversion assistance related to such acquisitions pursuant to Section 7 of the Agreement. Volume reductions by Client shall not result in a reduction of fees below the monthly fees set out in Section 1 of this Exhibit C; however, if volumes are reduced to a level less than seventy-five percent (75%) of the Base Volume of Core Accounts, SI and Client will negotiate in good faith to establish a new base monthly fee. In addition, Client-requested changes in the output schedule, in third- party software or in copies made (laser printer, fiche, etc.) may require personnel and/or equipment additions. If any such Client-requested change is expected to have such an impact, SI will advise Client in writing, and the parties will negotiate in good faith a mutually agreeable additional charge. 4. DASD Capacity. If Client wishes to make a material change in the length of data records or in the amount or kinds of data available in on-line data files, SI will provide a written quotation of the cost to Client of additional DASD capacity to support such change(s). If approved by Client, SI will acquire the additional DASD capacity and the appropriate adjustment will be made to the fees reflected in Section 1 of this Exhibit C. 5. Resident Staff. 5.1 SI agrees to provide the following Resident Staff during the term of this Agreement: Resident Minimum Programming Dedicated to New Releases* 3.5 FTE 3.0 FTE Discretionary** 2.5 FTE 0 FTE Client Services 3 2 PC Support 2 0 * These resources will keep the SI application systems current to within one release of the latest release. ** These resources will work on projects as directed by Client. SI will also provide one additional programmer to Client at no cost to Client until March 31, 1992. 5.2 Client shall receive a monthly billing credit of at least $11,618 if it elects to eliminate all PC support positions from the Resident Staff. 6. SI Hourly Rates. The following hourly rates are currently in effect. The SI hourly rates may be changed by SI upon written notice to Client not more often than once during each twelve month period following the Effective Date. SI's Hourly Rates for programming include all related computer time required for program testing. Overtime rates are only applicable, if and to the extent, SI will incur overtime expense. SI fees are computed by multiplying the actual personnel hours extended on Client's project(s) including any travel time to and from Client location(s). In addition, Client agrees to reimburse SI for the actual expense of reasonable travel and lodging expense, if any, related to hourly rate based services requested by Client. SI will inform Client, in advance, if overtime or travel and lodging expense is anticipated to be incurred. Regular Overtime Minimum Hourly Rate Hourly Rate Billable Per Person Per Person Increment Per Person Programmer $90.00 N/A 4 Hours Computer Operators $15.00 $22.50 N/A In addition, Client will pay all reasonable travel and subsistence costs incurred by SI's employees in performance of any such additional services. 7. Price Adjustment. The parties acknowledge that SI's cost of providing services pursuant to this Agreement are likely to increase, particularly in the areas of data processing salaries and operating system maintenance. The fees and charges reflected in this Agreement will be increased, but not decreased, based on the effect of inflation. Effective with the monthly billing for the thirteenth month and again annually thereafter, such fees will be adjusted using a combination of the Consumer Price Index for All Urban Consumers - Other Goods and Services (the "CPI") and the Employment Cost Index for White Collar Workers (the "ECI"), both as published by the U.S. Department of Labor, Bureau of Labor Statistics. The percentage increase in such fees shall be equal to the sum of: (a) 0.7 multiplied by the percentage increase in the ECI; and (b) 0.3 multiplied by the percentage increase in the CPI. The percentage increases in the ECI and in the CPI used in computing the fees that are to become effective with the thirteenth month shall be the respective percentage increases in those indices over the one-year period ended July 30, 1992. The percentage increases in those indices used in computing the fees that are to become effective in the subsequent annual periods shall be the respective percentage increases in the indices over the subsequent twelve month periods commencing with the ninth, twenty- first, etc. contract months. Method of Calculation of Increase in Monthly Fee 1. ECI Actual - ECI Base x 0.7 = ECI Percentage Increase 2. CPI Actual - CPI Base x 0.3 = CPI Percentage Increase 3. CPI Percentage Increase + ECI Percentage Increase = Total Blended Increase (not less than zero) 4. (SI Montly Fees x. Total Blended Increase) + SI's Monthly Fees = Adjusted Fee Where: ECI Actual = The ECI Index in effect on the date used to calculate the increase (i.e., the ninth, twenty-first, twenty-seventh and each succeeding 12th month during the term of this Agreement) ECI Base = The ECI Index in effect on December 1, 1991 CPI Actual and Base = See ECI definition above SI's Monthly Fees = All fees payable hereunder Adjusted Fees = SI's Monthly Fees to be paid during applicable twelve (12) month period. 8. Non-Systematics Software. 8.1 At Client's request, SI will provide for use at the Data Center, the Atchley Systems Compliance (Comply/CTR) Software System ("CTR"). Beginning at such time as the CTR System is provided, in addition to all other fees and charges payable under the Agreement, Client shall pay to SI a monthly maintenance fee of $550.00 for providing and maintaining the CTR System. This monthly maintenance fee of $550.00 will be divided equally among all institutions subscribing to use the CTR System. For example, if five (5) institutions are subscribing to use the CTR System, each institution would pay $110.00 monthly. If one institution subscribes to use the CTR System such institution would pay $550.00 monthly. In addition, a monthly $135.00 usage fee will be due for each individual institution utilizing the CTR System, regardless of the number of such institutions. Such monthly fee shall be in addition to all other fees payable under the Agreement, shall be reduced by one percent (1%) on the annual anniversary date of the Agreement, and shall be adjusted in accordance with Section 7 of Exhibit C of the Agreement. 8.2 SI shall provide and maintain the 24-line Infobot/Monach Syntellect Voice Response System and Turnkey Voice Response Applications ("Voice Response System"). Client shall provide all necessary telephone lines, modems or other defined communications devices to support the operation of the Voice Response System. Client shall pay, in addition to all other fees payable under this Agreement, a monthly fee of $2,348.00. Such monthly fee shall in addition to all other fees payable under this Agreement, shall be reduced by one percent (1%) on the annual anniversary date of the Agreement and to $1,305 in month 61, and shall be adjusted in accordance with Section 7 of Exhibit C to the Agreement. Upon the expiration or termination of this Agreement, Client may purchase this equipment subject to the provisions of Section 11.3 of the Agreement. 8.3 SI shall replace Client's existing microfiche archival system with the INFO-SEARCH Report Storage and Information Retrieval System ("INFO- SEARCH System") described below. Beginning the month after microfiche is no longer produced by SI for the Client, SI shall credit Client's base monthly fee payable under Section 1.1 of Exhibit C in the amount of $6,311.00. In consideration for providing, installing and maintaining the INFO-SEARCH System, Client shall pay to SI a monthly fee of $7,377.00 payable beginning the month after the installation of the INFO-SEARCH System. Such monthly fee shall be in addition to all other fees payable under the Agreement, reduced one percent (1%) on the annual anniversary date of the Agreement, and shall be adjusted in accordance with Section 7 of Exhibit C of the Agreement. Client shall provide all necessary telephone lines, modems or other defined communications devices to support the INFO-SEARCH System. Upon expiration or termination of this Agreement, Client may purchase this equipment subject to the provisions of Section 11.3 of the Agreement. 8.4 SI shall provide for use at the Data Center the Mobius-Infopac software system. Beginning at such time as Infopac is provided, in addition to all other fees and charges payable under the Agreement, Client shall pay to SI a monthly fee of $1,350.00 for providing the software. This fee will be reduced in month 61 to the then-applicable software maintenance fee. Such monthly fee shall be in addition to all other fees payable under the Agreement, shall be reduced by one percent (1%) on the annual anniversary date of the Agreement, and shall be adjusted in accordance with Section 7 of Exhibit C of the Agreement. INFO-SEARCH System Configuration Description Quantity Gateway 2000 Personal Computer Two (2) 80386 Processor/33 Megahertz 4MB Memory Math Coprocessor 300 Megabyte Disk Drive 1.2 Megabyte 5.25" Floppy Drive and/or 1.44 Megabyte 3.5" Floppy Drive VGA Video Card w/132 Column Capability VGA Monitor MSDOS 3.3 Operating System w/Manuals Formatted w/Disk Manager Dot Matrix Printer Two (2) M4 Tape Drive/6250 BPI/16 Bit Board One (1) Fax Board - AT Compatible (Internal 4800 Baud Modem) Two (2) Optical Disk Drive (AT Bus/MCA PC) (2 each stand-alone/LAN) Four (4) FAX Board - MCA Compatible (LAN) Two (2) Pro-Access Software License (Stand-alone) Two (2) Pro-Access Software License - LAN One (1) PC Anywhere Remote Diagnostics Two (2) Map Assist Optical Redirector One (1) Client: Brenton Information Systems, Inc. Effective Date: December 1, 1991 EXHIBIT "D" REPORTING SCHEDULE This Exhibit D will be completed prior to the Effective Date of this Agreement. The delivery schedules for input and output in effect on the execution date of this Agreement are set forth herein. This Exhibit D may be changed from time to time, by mutual agreement of Client and SI. 1. Client Delivery Schedules 1.1 Client Input to SI. Time Available for SI Processing Daily (Monday through Saturday) Monetary Input Inclearings 1:00 to 2:00 p.m. 100% POD transmission completed by FHLB 11:30 p.m. 100% Transmission completed from Originator ACH Tape(s) 8:00 a.m., 3:00 p.m. Non-Monetary Input Payroll (Automated Transmission from CDC/ADP) 5:00 p.m. BCR Build/Update Entry 3:00 p.m. ARM Entry 1:00 p.m. CAPS Input 4:00 p.m. 1.2 SI Output to Client. Daily (Monday through Friday) Time Available for Client Pick-Up All Application Reports 5:30 a.m. following business day Fine Sort, Cycle and Exception Files (available to FHLB) Transmission commences 3:00 a.m. DDA Statements Noon following day ACH Tape(s) 12:01 a.m. following day Optical Support 8:00 a.m. - 5:00 p.m. Weekly (Sat., Sun., Business Day of Week) ITS Reports Tues. 5:00 a.m. following day Monthly (EOM Business Day of Month) Accounts Payable 1st business day following Billing 1st business day following Account Analysis 3rd business day following DDA Statements 1:00 p.m. - 5:00 p.m. following business day Savings Statements 5:00 p.m. following business day Office Reporting 2nd following business day IL & RE EOM Jobs 2nd following business day EFT End of Month 2nd following business day Quarterly (EOQ Business Day of Quarter) Savings Statements 5:00 p.m. following business day Year-End 1099 - Int. Processing (tape output) 2nd business day following EOY Interest Registers/Notice 2nd business day following EOY General Ledger closing - by request IRA Statements (2nd business day following EOY) 1.3 Client On-Line Availability. Mon.-Fri. Saturdays Sundays Holidays From To From To From To From To Administrative* 7:30 6:30 7:30 3:30 11:00 4:00 7:30 6:30 a.m. p.m. a.m. p.m. a.m. p.m. a.m. p.m. except New Years Teller Terminal ATM 5:30 5:00 5:30 5:00 24 hours 5:30 5:00 a.m. a.m. a.m. a.m. a.m. a.m. FMS Reports 9:30 6:30 9:30 3:30 a.m. p.m. a.m. p.m. All other reports 7:30 6:30 7:30 3:30 a.m. p.m. a.m. p.m. 1.4 Additional Schedules - Client. *Available for Inquiries Monday, Thursday until 8:00 p.m. Tuesday, Wednesday until 7:00 p.m. Friday until 7:30 p.m. 1.5 Batch Processing Update Frequency. SI will do a batch update of Client's file five (5) times weekly, Monday through Friday. Client: Brenton Information Systems, Inc. Effective Date: December 1, 1991 EXHIBIT "E" EQUIPMENT LEASE To be used only if SI leases equipment to Client Client: Brenton Information Systems, Inc. Effective Date: December 1, 1991 EXHIBIT "F" CLIENT-FURNISHED EQUIPMENT AND SOFTWARE Client will furnish to SI the equipment and software ("Equipment" and "Software") described below under the following terms and conditions: 1. Term of Agreement. The term of this Exhibit F is the same as the term of this Agreement. 2. Taxes. Client will pay all taxes, however designated or levied or based on the Equipment or Software or their use. 3. Risk of Loss; Replacement. Except for loss or damage caused by the negligence or intentional misconduct of SI, SI shall not be responsible for any loss or damage to the Equipment or Software. If any Equipment or Software furnished hereunder is damaged, destroyed or malfunctions to the extent that the same cannot be repaired, or Client elects not to so repair then, provided such damage or malfunction was not caused by SI as set forth above, Client agrees to acquire and install, as soon as reasonably practicable, comparable replacement Equipment or Software. 4. Charges. No charge shall be payable by SI for its use of the Equipment or Software. Services provided under the Agreement by SI are acknowledged by Client to be adequate consideration of Client's agreement to provide such Equipment and Software. 5. Insurance. Client is responsible for the cost of all fire, extended coverage and theft insurance in an amount covering the Equipment. 6. Maintenance. Client agrees to enter into and to keep in force during the term hereof, at Client's sole cost and expense, standard maintenance agreements to keep the Equipment in good working order, to make all necessary adjustments and repairs thereto, and to pay all maintenance costs relative to the use of the Equipment. Client also agrees to purchase software maintenance agreements from the vendors of each item of Software listed below. SOFTWARE SCHEDULE The following is a list of the Software to be provided by Client to SI pursuant to the Agreement and this Exhibit F. The Termination Date, if any, represents the date after which Client is no longer obligated to provide the same to SI. Equipment None Software Name and Description of Name of Software Termination Date Software Owner Paperless Entry Processing Stockholder Systems 11/30/1996 Corporate Automated Payment Stockholder Systems 11/30/1996 ListCat Plus MacKinney Systems 11/30/1996 Source Program Compare MacKinney Systems 11/30/1996 Client: Brenton Information Systems, Inc. Effective Date: December 1, 1991 EXHIBIT "G" SOFTWARE LICENSE AGREEMENT 1. Provision of Software. 1.1 SI agrees to license and furnish to Client the SI application systems listed in Exhibit A to the Agreement if such systems are delivered prior to the expiration or termination of the Agreement. Such application systems are hereinafter referred to as the "Software". 2. Documentation. 2.1 For each item of Software, SI shall also deliver to Client a complete set of standard operational instructions and documentation, including, but not limited to, the Software source code in machine readable form; a copy of SI's standard associated control statements used for operation, development, maintenance and use of the source code, and any other documentation which is provided by SI to its other similar customers. Such documentation and other materials are hereinafter referred to as "Documentation." 2.2 Subject to the provision of Section 4, below, SI agrees to deliver to Client copies of any revisions, improvements, enhancements, modifications and updates to the Documentation which are produced by SI. 2.3 Client may copy the Documentation provided hereunder in order to satisfy its own internal requirements. If Client requests, SI agrees to furnish additional copies to Client at SI's then standard fee for such copies. 3. Term and Use Restrictions. 3.1 This is a perpetual license. Client acknowledges that the licensed Software and all related Documentation constitute valuable assets and trade secrets of SI and that all information with respect thereto is confidential. The Software is licensed to Client only for use by Client for itself, its subsidiaries and affiliates. 3.2 Client agrees to safeguard the licensed Software with at least the same degree of care that it exercises with respect to its own confidential and proprietary information, and shall take all reasonable precautions to assure that its employees and representatives do not sell, lease, assign, or otherwise transfer, disclose or make available, in whole or in part, the licensed Software or Documentation thereof to any third party for any reason (except for employees of Client, for auditing purposes by independent certified public accountants, for complying with applicable governmental laws, regulations or court orders or for the limited disclosure to customers of Client of user manuals and similar information which must be disclosed in connection with providing data processing services by Client). With prior approval of SI, Client may make licensed Software or Documentation available to any third party that has a valid license to the same version of the Software, as provided by this Software License Agreement. SI shall not arbitrarily deny such approval provided Client has complied with all other provisions of this Software License Agreement. In no event, however, shall any competitor of SI be furnished with any information, directly or indirectly, concerning the Software or the Documentation. 3.3 The licensed Software and all related Documentation and materials may be used by Client and maintained at one location, only as set forth below (the "Installation Site") and may not be used by Client or any other person at any other location or facility; provided, however, that Client may change the location where it uses the licensed Software upon prior written notice to SI and delivery of a written certificate that all use of the licensed Software shall be limited to such new location. The Installation Site shall be as follows: Brenton Information Systems, Inc. Capital Square, Suite 300 Des Moines, Iowa 50304-0961 3.4 All modifications to the licensed Software developed as a result of joint efforts by SI and Client shall become the exclusive property of SI, subject to all of the terms and conditions of this License Agreement, including the right of Client to use such modifications in accordance herewith and including the foregoing agreements of Client with respect to disclosure of and/or access to such modifications. Modifications to the licensed Software developed solely by Client without the participation of SI shall be considered to be part of the Software for purposes of determining Client's obligations under this Section 3; provided, however, that Client shall have the exclusive right to use any such modifications it may develop, and SI shall have no right to market such modifications without Client's express written consent. 3.5 Client further acknowledges and agrees that, in the event of a breach or threatened breach by Client of any provision of this Section 3, SI will have no adequate remedy in money or damages and, accordingly, shall be entitled to appropriate injunctive relief. However, no specification in this License Agreement of a specific legal or equitable remedy shall be construed as a waiver or prohibition against any other legal or equitable remedies in the event of a breach of any provision of this Agreement. 3.6 SI retains title to the Software provided hereunder and does not convey any rights or proprietary interest therein to Client, other than the license as specified herein. 3.7 Upon the termination by SI of this License Agreement or any licenses granted to Client hereunder, Client agrees to promptly cease using and return to SI all software involved and Documentation related thereto and all copies thereof. Such return shall also be accompanied by a written certificate, signed by an appropriate executive officer of Client, to the effect that all such Software, related Documentation and copies thereof have been so returned to SI. 3.8 SI hereby acknowledges and agrees that Client shall have the right to modify any of the Software provided to Client hereunder and may use and combine such with other programs and/or material to form an updated work. Such modifications to the licensed Software, either alone or in combination, shall become part of the licensed Software and shall be subject to all of the terms and conditions of this License Agreement, including the right of Client to use such modifications in accordance herewith and including the agreement of Client to limit the use of, the disclosure of and/or access to, such modifications. 3.9 Client acknowledges that all PC-based Software ("Micro Software") is released in object code only. The following additional provisions shall be applicable to Micro Software: (a) Client may copy the Micro Software and use it on multiple microprocessors solely for the benefit of Client and Client's affiliates including, but not limited to, Client's parent holding company, its subsidiaries and affiliates. The documentation for the Micro Software may be similarly copied and utilized. At Client's option, additional copies may be made either by Client or by ordering the same from SI at SI's standard rates. (b) All other restrictions on use, copying or disclosure of the Software licensed hereunder shall also apply to the Micro Software and its documentation. In addition, Client may not provide data processing services using the Micro Software to any person, firm, or corporation (other than Client's affiliates and subsidiaries) without the prior written consent of SI and the payment to SI of additional license fees. (c) In consideration of the right to make and use the additional copies granted in Section (a) above, Client agrees and acknowledges that all support for end-users of the Micro Software will be supplied by Client's personnel, and that SI is not responsible for providing any Micro Software support services to end-users. 4. Enhancements. Within ninety (90) days of its delivery of a termination notice, as provided in the Agreement, or within ninety (90) days preceding the Expiration Date, as set forth in the Agreement, Client may elect to purchase program maintenance from SI for the licensed Software. All updates, modifications and enhancements (the "Updates") to the Software, if any, (once incorporated into any Software hereunder) shall be deemed to be part of the license Software for all purposes hereunder. In the absence of Client's purchase of program maintenance thereafter, SI shall not be obligated to deliver Updates or related Documentation to Client. If Client exercises this option, SI agrees to provide such maintenance and Client agrees to pay SI its current software maintenance rate(s) then in effect for such system(s). 5. Warranties. 5.1 SI warrants to Client that: (i) SI has the right to furnish the Software, Documentation and other materials provided to Client hereunder free of all liens, claims, encumbrances and other restrictions; (ii) Client shall quietly and peacefully possess the Software, Documentation and other materials provided to Client hereunder, subject to and in accordance with the provisions of this License Agreement; and (iii) Client's use and possession of the Software, Documentation and other materials provided to Client hereunder will not be interrupted or otherwise disturbed by any entity asserting a claim under or through SI. 5.2 SI warrants and represents that the licensed Software will perform, on an appropriately configured IBM computer system, in the manner described in the Documentation thereof. 5.3 EXCEPT AS PROVIDED HEREIN, ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, ARE HEREBY EXPRESSLY DISCLAIMED AND EXCLUDED. 6. General. 6.1 Taxes. Client agrees to pay all taxes levied by a duly constituted taxing authority against or upon Client's use of the Software or arising out of this License Agreement; exclusive, however, of taxes based on SI's income, which taxes shall be paid by SI. Client agrees to pay any tax for which it is responsible hereunder, which may be levied on or assessed against Client directly, and, if any such tax is paid by SI, to reimburse SI therefor, upon receipt by Client of proof of payment reasonably acceptable to Client. 6.2 Patent and Copyright Infringement. SI agrees to defend and/or handle, at its own expense, any claim or action brought by any third party against Client for actual or alleged infringement of any patent, copyright or similar property right (including, but not limited to, misappropriation of trade secrets) based upon the Software or Documentation furnished hereunder by SI. SI further agrees to indemnify and hold Client harmless from and against any and all liabilities, losses, costs, damages, and expenses (including reasonable attorneys' fees) associated with any such claim or action incurred by Client. (a) SI shall have the sole right to conduct the defense of any such claim or action and all negotiations for its settlement or compromise, unless otherwise mutually agreed to in writing between the parties hereto. (b) SI agrees to give Client prompt written notice of any written threat, warning or notice of any such claim or action against SI or any other use or any supplier or components of the Software covered hereunder, which could have an adverse impact on Client's use of same, provided SI knows of such claim or action. 6.3 Limitation of Liability. If either party shall breach any covenant, agreement or undertaking required of it by this Agreement, the parties agree that the liability of the breaching party shall be limited to direct damages caused by said breach, and shall not include any special, indirect or consequential damages. 6.4 Material Breach. In the event of any material breach of the Agreement or of this License Agreement by Client, SI may (reserving cumulatively all other remedies and rights under this License Agreement in law or in equity) terminate this License Agreement, in whole or in part, by giving ninety (90) days' prior written notice thereof; provided, however, that this License Agreement shall not terminate at the end of said ninety day notice period if Client has substantially cured the breach of which it has been notified prior to the expiration of said ninety (90) days. In the event of such a termination by SI pursuant to this Section 6.4, Client will promptly discontinue its use of the licensed Software and related Documentation and shall return to SI all copies thereof in its possession or control. Such return shall also be accompanied by a written certificate, signed by an appropriate executive officer of Client, to the effect that all such Software, related Documentation and copies thereof has been so returned to SI. In addition, Client agrees that monetary damages will not be sufficient to compensate SI in the event of any actual or threatened breach by Client of any restriction on Client's use of the licensed Software or Documentation provided in this License Agreement and that, in such event, SI shall be entitled to injunctive and other equitable relief which may be deemed necessary or appropriate by any court of competent jurisdiction. 6.5 Notices. Any notices or other communications required or permitted to be given or delivered under this License Agreement shall be in writing (unless otherwise specifically provided herein) and shall be sufficiently given if delivered personally or mailed by first- class mail, postage prepaid, If to Client: Brenton Information Systems, Inc. Capital Square, Suite 300 Des Moines, Iowa 50304-0961 If to SI: Systematics Financial Services, Inc. 4001 Rodney Parham Road Little Rock, Arkansas 72212-2496 Attention: President or to such other address as either party may from time to time designate to the other by written notice. Any such notice or other communication shall be deemed to be given as of the date it is personally delivered or when placed in the mails in the manner specified. 6.6 Advertising or Publicity. Neither party shall use the name of the other in advertising or publicity releases without securing the prior written consent of the other. 6.7 Assignment. This License Agreement shall be binding upon the parties and their respective permitted successors and assigns. Neither party may sell, assign, convey or transfer, by operation of law or otherwise, any of its rights or obligations hereunder without the prior written consent of the other party and any such attempted transfer shall be void. 6.8 Governing Law; Jurisdiction and Venue. The validity of this License Agreement, the construction and enforcement of its terms, and the interpretation of the rights and duties of the parties shall be governed by the laws of the State of Iowa. Client and SI hereby consent and agree that jurisdiction and venue for any claim or cause of action arising under this Agreement with respect to the validity, construction or enforcement hereof shall be properly and exclusively in the state or federal courts located in Des Moines, Iowa, and expressly waive any and all rights they may have or which may hereafter arise to contest the propriety of such choice of jurisdiction and venue. 6.9 Modification, Amendment, Supplement and Waiver. No modification, amendment, supplement to or waiver of this License Agreement or any of its provisions shall be binding upon the parties hereto unless made in writing and duly signed by both parties or the party to be charged, as appropriate under the circumstances. A failure or delay of either party to this License Agreement to enforce at any time any of the provisions hereof, or to exercise any option which is herein provided, or to require at any time performance of any of the provisions hereof, shall in no way be construed to be a waiver of such provision of this License Agreement. 6.10 Severability. In the event any one or more of the provisions of this License Agreement shall for any reason be held to be invalid, illegal or unenforceable, the remaining provisions of this License Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable provision, which being valid, legal and enforceable, comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision. 6.11 Headings. The headings in this License Agreement are for purposes of reference only and shall not in any way limit or affect the meaning or interpretation of any of the terms hereof. IN WITNESS WHEREOF, the parties hereto have executed this License Agreement as of the day, month and year first above written, by the undersigned officers thereunto duly authorized. SYSTEMATICS FINANCIAL BRENTON INFORMATION SERVICES, INC. SYSTEMS, INC. By: /s/ By: /s/ Name: Collins A. Andrews Name:-Saulene M. Richer Title: Executive Vice Title:-SVP/Marketing & Technology President Date: 1/2/92 Date: 1/2/92 EXHIBIT H DISASTER RECOVERY AGREEMENT This is a Disaster Recovery Agreement (the "Agreement") made and entered into contemporaneously with the Data Processing Agreement (the "FM Agreement"), dated as of December 1, 1991, between Systematics Financial Services, Inc., an Arkansas corporation, 4001 Rodney Parham Road, Little Rock, Arkansas, 72212-2496 (hereinafter "SI") and BRENTON INFORMATION SYSTEMS, INC. Capitol Square, Suite 300 Des Moines, Iowa 50304 (hereinafter "CLIENT"). WHEREAS, SI maintains a computer disaster recovery facility for use by Subscribing Clients in the event of a Disaster (see definitions, below); and WHEREAS, CLIENT wishes to have access to such computer disaster recovery facility in the event of a Disaster; NOW THEREFORE, in consideration of the payments to be made and services to be performed hereunder, the parties agree as follows: 1. Definitions. The terms and phrases listed below shall have the indicated special meanings when used in this Agreement: "Disaster Recovery Facility" - The Computer Equipment described in Attachment 2 and located at SI corporate headquarters. "Data Center" - CLIENT's IBM-based computer facility located at: 717 Mulberry, Suite 503 Des Moines, Iowa 50309 "Disaster" - Any interruption in the availability or accessibility of the Data Center, resulting from causes beyond CLIENT's control and reasonably expected to last more than seventy-two (72) continuous hours. "Multiple Disaster" - Disasters experienced by two or more Subscribing Clients at times when such Subscribing Clients would be entitled to use the Disaster Recovery Facility at the same time. "Shell Facility" - Preconditioned space suitable for the installation of CLIENT's computer equipment, located at 409 Shall Street, Little Rock, Arkansas. "Subscribing Client" - Any person, firm or corporation which has entered into a Disaster Recovery Agreement with SI for use of the Disaster Recovery Facility. 2. Term. The term of this Agreement shall begin on December 1, 1991 (the "Effective Date") and shall be coterminous with the FM Agreement. 3. Disaster Recovery Facility. 3.10 Access. Upon declaration of a Disaster, CLIENT may use the Disaster Recovery Facility under the appropriate class of service, upon at least six hours' notice to SI, for a period of up to six (6) consecutive weeks (the "Recovery Period"). Thereafter, continued use of the Disaster Recovery Facility, may be permitted except that another Subscribing Client who experiences a Disaster after CLIENT's Recovery Period shall be granted priority access to and use of the facility. 3.20 SI Computer Equipment. SI will purchase and maintain in force maintenance agreements for the equipment described in Attachment 2. 3.30 SI Computer Equipment Change. SI may change or relocate its IBM compatible computer equipment configuration at any time upon sixty (60) days prior written notice to CLIENT; provided, however, that no such notice shall be required if any such change does not adversely affect the usefulness to CLIENT of the changed configuration as a Disaster Recovery Facility. If such a change results in the Disaster Recovery Facility becoming materially unusable to CLIENT for disaster recovery, CLIENT may terminate this Agreement in accordance with Paragraph 10 herein. 3.40 Multiple Disasters. In order to reduce the possibility of a Multiple Disaster, SI will exercise due care and discretion in contracting with new clients to avoid geographic concentrations that would unduly increase exposure. When a new contract is contemplated that would result in a perceived exposure due to a geographic concentration and/or client size, SI will perform an analysis of said exposure for review by SI management prior to execution of the proposed contract. In addition, no agreement will be signed with a prospective client who is currently experiencing a Disaster. If a Multiple Disaster occurs, more than one Subscribing Client may be granted access to the Disaster Recovery Facility. SI will exercise its best efforts to coordinate the activities of these Subscribing Clients. 3.50 Computer Equipment Compatibility Assurance. CLIENT will appoint a Disaster Recovery Coordinator who will maintain records of CLIENT computer equipment sufficient to identify any differences which could affect successful processing, and will promptly notify SI of any change which may do so. The Disaster Recovery Coordinator will maintain documentation for resolution of such differences in the event of a Disaster. SI will provide CLIENT with one (1) copy of the SI Disaster Recovery Services Users Guide to assist CLIENT in the understanding and use of the services provided herein. CLIENT agrees to conduct a test annually in the Disaster Recovery Facility. Each test should be an analysis of compatibility consisting of CLIENT's operating system, applications, and communications software sufficient to achieve the pre-established mutually agreeable objectives. The test should be planned for completion within the test time allocation specified in Attachment 2, although extra time may be authorized by SI if unforeseen problems occur and there is a reasonable expectation of solution within the time extension. CLIENT will submit the request for an annual test to SI using forms and procedures established. SI will schedule the test on a mutually agreeable date. Data Center personnel will conduct the test with the assistance of SYSTEMATICS staff, as necessary. 3.60 Non-Disaster Use. The Disaster Recovery Facility will be used by SI for development and internal accounting, and for testing of other Subscribing Clients. During any Recovery Period, a Subscribing Client who has declared a Disaster shall take priority over all such use and may preempt CLIENTs' test and use of associated services. 4. Disaster Recovery Plan. CLIENT agrees to develop or acquire, and to maintain, a specific, written plan for dealing with its data processing needs during a Disaster (the "Disaster Recovery Plan"). A current copy of the Disaster Recovery Plan shall be maintained by CLIENT at its operating facility, at an offsite backup location, at the Data Center, and at SI's Disaster Recovery Facility. 5. SI and CLIENT Relationship. 5.10 CLIENT Personnel. CLIENT agrees that trained personnel, with appropriate levels of authority shall be temporarily located at the Disaster Recovery Facility during all Recovery Period processing to perform all CLIENT operations functions. In addition, to the extent that CLIENT has responsibility under the FM Agreement, CLIENT agrees to provide the necessary supplies and personnel (at the Disaster Recovery Facility or at CLIENT's facility, as required) to perform said functions. 5.20 Travel and Living Expenses. CLIENT will pay all travel and living expenses incurred by either CLIENT or SI for temporary relocation of personnel as a result of a Disaster and/or testing. 5.30 Additional SI Personnel. CLIENT agrees to pay the amounts normally charged to other similarly-situated clients of SI for all services performed by SI that are not otherwise provided for in the FM Agreement or in this Agreement. 5.40 Processing Frequency. This Agreement does not guarantee that all applications will be processed as frequently during the Recovery Period as they are processed under the FM Agreement. The applications processed will be consistent with the priorities set forth in the Disaster Recovery Plan. 5.50 Time of Performance. SI will use diligence to provide the data processing services set forth in the FM Agreement at the times required therein. CLIENT acknowledges, however, that the circumstances of a Disaster are likely to adversely impact SI's time of performance and that the provisions of the Time of Performance section of the FM Agreement shall continue to be applicable during the Recovery Period. 6. Service Levels. 6.10 Basic Coverage. The basic coverage under this Agreement provides for access to the Disaster Recovery Facility under the Class of Service indicated in Attachment 1. 6.20 Planning Service. Planning services, to assist CLIENT in fulfilling the requirement for a Disaster Recovery Plan under Section 4 of this Agreement, are provided under the terms and conditions of Attachment 3. 6.30 Shell Facility. Access to and use of the Shell Facility are provided under the terms and conditions of Attachment 4. 6.40 Online. Availability of local terminals at the Disaster Recovery Facility is provided as shown in Attachment 2. Backup of CLIENT's online circuits, if any, is provided under the terms and conditions of the Addendum for Dialup Analog Kits, or the Addendum for Multiplexer Service, or the Addendum for Switched T1 Service. 6.50 Remote Terminal Cluster. Availability of a remote terminal cluster, if any, is provided under the terms and conditions of the Addendum For Remote Terminal Cluster. 6.60 Reader-Sorter Equipment. Backup of CLIENT reader-sorter equipment, if any, is provided under the terms and conditions of the Addendum For Reader-Sorter Support. 6.70 Proof Backup. Backup for CLIENT single-pocket proof equipment, if any, is provided under the terms and conditions of the Addendum For Proof Backup. 7. Fees 7.10 Participation Fee. CLIENT will pay the applicable monthly participation fees for the Class of Service indicated in Attachment 1. 7.20 CLIENT Computer Equipment Change. Upon the installation or deinstallation of any computer equipment at CLIENT's data center which changes CLIENT's Class of Service, CLIENT agrees to pay the participation fees (whether higher or lower) at the new Class of Service rate. If CLIENT's requirements exceed the capacity of or are incompatible with the subscribed Class of Service, CLIENT will notify SI. SI and CLIENT will then have ninety (90) day in which to resolve the capacity or incompatibility situation, which solution may include an agreement with third party. If, after ninety (90) days from CLIENT's notice to SI, SI and CLIENT have not agreed upon a mutually satisfactory solution, either party may terminate this Agreeement. 7.30 Facility Access Fee. CLIENT agrees to notify SI verbally and in writing of its declaration of a Disaster, and such notice shall require payment of the Disaster Declaration Fee set forth in Attachment 1. 7.40 Facility Usage Fee. During the Recovery Period, CLIENT will also pay the hourly Facility Usage Fee described in Attachment 1. 7.50 Miscellaneous Fees. CLIENT will pay for miscellaneous SI services used during the Recovery Period at the rates then charged to other similarly-situated SI clients. 7.60 Escalation of Fees. SI may periodically adjust its fees for Disaster Recovery to reflect the various fluctuations in the cost of supplying services. Such adjustments will occur under the same terms and conditions as those described in Exhibit C of the FM Agreement. 8. Payment and Billing. CLIENT agrees to pay the Participation Fee monthly in advance. Other applicable fees will be invoiced at least monthly. CLIENT agrees to pay all such fees within thirty days of the respective dates of such invoices. 9. Location Change. CLIENT may change the location of the Data Center upon prior written notice to SI. 10. CLIENT Termination. CLIENT may terminate this Agreement if any change in the SI Computer Equipment results in the Disaster Recovery Facility becoming materially unusable to CLIENT for disaster recovery purposes. CLIENT must notify SI in writing within thirty (30) days of SI's announcement of the equipment change. Termination is subject to the actual installation of such equipment and effective as of such equipment change installation date. 11. Security and Confidentiality. CLIENT agrees to observe SI's security procedures while using the Disaster Recovery Facility. SI and CLIENT each agree to take such steps and exercise such precautions to protect the proprietary or confidential information of the other as each exercises in protecting its own most valuable proprietary or confidential information. SI and CLIENT each agree to indemnify the other and hold the other harmless from and against any loss, claim, damage or expense (including attorneys' fees) resulting from or arising out of any unauthorized use or disclosure of the confidential or proprietary information of the other. 12. Shared Use. CLIENT acknowledges that SI is not liable for any loss, claim, damage or expense directly or indirectly resulting from the shared use of the Disaster Recovery Facility and related services in the event of a Multiple Disaster, except to the extent that such loss, claim, damage or expense was caused by SI's negligence or willful misconduct. 13. Disclaimer of Merchantability. ALL REPRESENTATIONS AND WARRANTIES OF SI ARE EXPRESSLY SET FORTH HEREIN. ALL OTHER REPRESENTATIONS AND WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE DISASTER RECOVERY FACILITY AND RELATED SERVICES OR THEIR USE, ARE HEREBY DISCLAIMED. 14. Forces Beyond SI Control. SI shall use reasonable and diligent efforts to make the Disaster Recovery Facility and related services available and operational at all times, and in so doing shall take reasonable steps to safeguard against events which could adversely impact the use thereof. SI is not liable to CLIENT or any other person for claims or damages which result from any failure beyond SI's control including but not limited to, acts of God, the public enemy, acts of any federal, state or local government, fires, floods, tornados, earthquakes or other weather related disasters, war, strikes, unavailability of computer equipment replacement parts, disruption of communication service and utility outages. 15. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Iowa. IN WITNESS WHEREOF, this Agreement has been executed by the undersigned, hereunto duly authorized, on the date(s) set forth below. SYSTEMATICS FINANCIAL BRENTON INFORMATION SERVICES, INC. SYSTEMS, INC. By: /s/ By: /s/ Name: Collins A. Andrews Name:-Saulene M. Richer Title: Executive Vice Title:-SVP/Marketing & Technology President Date: 1/2/92 Date: 1/2/92 ATTACHMENT 1 FEE SCHEDULE CLIENT's CLASS OF SERVICE is determined by the CPU size (in MIPS) in the Data Center. The services provided hereunder are indicated below under Class of Service. Total Monthly Participation Fees are computed below and are included in the monthly fees shown in Exhibit C. CLASS OF SERVICE "Standard" "A" "AA" "AAA" 0-2.0 2.1-4.0 4.1-8.0 8.1-11.0 MIPS MIPS MIPS MIPS I. Participation Fees: Basic Service includes: _____ _____ 2,200 _____ Planning Service Shell Facility On-Line Processing: Multiplexer Service _____ _____ 500 _____ Additional SW56KB/DSU _____ _____ 150 _____ TOTAL MONTHLY PARTICIPATION FEE $_____ $_____ $2,850 $_____ II. Facility Access Fee:$10,000 $10,000 $15,000 $25,000 III. Facility Usage Fee: Disaster Recovery Facility (Clock Hour) $200.00 $250.00 $300.00 $500.00 Shell Facility (SqFt/Day) $ .15 $ .15 $ .15 $ .15 ATTACHMENT 2 COMPUTER EQUIPMENT LIST CLASS OF SERVICE "AA" 4381-P13 Quantity IBM Type-Model Description 1 4381-P13 Processor (or Equivalent) 12 3178-C30 Terminals (Local) 16 Volumes 3380 Single Density Disk Drives (or equivalent) 2 Drives 3420-8 Tape Drives (1600/6250 BPI) 3 Drives 3480 Tape Cartridges 1 3725 Communications Controller 2 4245-20 Printer (2000 LPM) 10 Hours Test Time Ten Wall-Clock Hours (Non-comulative) ATTACHMENT 3 PLANNING SERVICES Attachement to the Disaster Recovery Agreement between Systematics Financial Services, Inc. ("SI) and the CLIENT whose name appears on page H-1 hereof. 1. SI Responsibilities. SI agrees to provide CLIENT with one (1) copy of SI's Recovery Reference Manual, four (4) copies of the hardcopy version of SI's Recovery Procedures Manual (the "Plan"), as well as the version on IBM PC- compatible diskettes, along with the required software for the WordPerfect word processing package necessary to utilize the diskette- based Plan. SI also agrees to provide CLIENT with updates to the Plan as they are developed. SI will offer a Disaster Recovery Planning Workshop (the "Workshop") on a regular basis, to assist CLIENT planners in contingency planning techniques. CLIENT may send no more than four (4) people to the Workshop. SI will publish a list, at the beginning of each calendar year, of projected dates for the proposed Workshops, but reserves the right to cancel or reschedule workshops as appropriate. 2. CLIENT Responsibilities. CLIENT agrees to customize the Plan to fulfill CLIENT's own requirements and to incorporate appropriate updates that SI may supply from time to time. CLIENT also agrees to exercise its best effort in taking advantage of planning Workshops and other planning aids as appropriate to CLIENT's requirements. CLIENT acknowledges that familiarity with the WordPerfect word processing package is required to enhance CLIENT's productivity in the Workshop and agrees that at least one of CLIENT's prospective attendees will have acquired satisfactory expertise prior to the Workshop. CLIENT furthermore acknowledges that the Plan is confidential and proprietary material and will be returned to SI upon expiration of this contract. 3. Fees. Fees for the services provided by SI under this Attachment are included in the Monthly Participation Fees set out in Attachment 1. *WORDPERFECT is a registered trademark of WordPerfect Corporation. ATTACHMENT 4 SHELL FACILITY Attachment to the Disaster Recovery Agreement between Systematics Financial Services, Inc. ("SI") and the CLIENT whose name appears on page H-1 hereof. 1. SI Disaster Recovery Shell Facility. 1.10 Access and Utilization. Upon declaration of a Disaster, CLIENT will have access to the Shell Facility for a period of up to nine (9) months (the "Extended Recovery Period"). In the event of a Multiple Disaster, more than one Subscribing Client may be granted access to the Shell Facility pursuant to Section 3.40 of the Agreement. SI may utilize the facility if a Disaster occurs in any of its own data centers. 1.20 Computer Equipment. No computer equipment will be installed prior to the Recovery Period. The party who owned the equipment in the Data Center will be responsible for procurement, shipment and installation of all required equipment following the declaration of a Disaster. 1.30 Specifications. The Shell Facility consists of 17,500 sq. ft. of space, including 4,500 sq. ft. of raised floor area. Air conditioning capacity is 600,000 BTU/HR, electrical capacity is 160KVA. There are 200 telephone pairs into the building, with 20 pairs active. The remaining non-raised floor area consists of office and storage space for CLIENT use. CLIENT will pay the fee prescribed in Attachment 1, for the amount of space actually used by CLIENT during the Extended Recovery Period. 2. CLIENT Personnel. CLIENT agrees that trained personnel of CLIENT, with appropriate levels of authority shall be temporarily located at the Shell Facility during the Extended Recovery Period to perform all CLIENT operations functions. An SI representative will be present while CLIENT personnel are occupying the Shell Facility. To the extent that they are available, qualified SI personnel may be assigned to augment CLIENT's staff at the rates referenced in Section 5.30 of the Agreement. 3. Termination. SI may terminate this Attachment, without the termination of the Agreement and other attachments, addenda or schedules, upon ninety (90) days prior written notice to CLIENT. Should this service be supplanted by another form of service which is useful to CLIENT, CLIENT will be afforded priority to subscribe to the new service. ADDENDUM FOR MULTIPLEXER SERVICE Addendum to the Disaster Recovery Agreement between Sytematics Financial Services, Inc. ("SI") and the CLIENT whose name appears on page H-1 hereof. 1. CLIENT Responsibility. CLIENT will provide a location for the installation of an Altenate Control Point (ACP) for each multi-point circuit that CLIENT desires to back up, and arrange for installation of an appropriate telephone company interface, business telephone lines, and appropriate jacks for each designated circuit. 2. SI Responsibilities. SI will provide an Infotron muliplexer kit for up to ten (10) circuits, along with access to one (1) AT&T Accunet 56kb Switched Digital circuit and DSU ("Multipler Service"), and an additional AT&T 56kb Switched Digital access and DSU ("Additional SW56KB/DSU"), at the Disaster Recovery Facility. SI will also provide a matching multiplexer kit for CLIENT's designated ACP location, and will ship the required kit to CLIENT as soon as possible after CLIENT has notified SI of a Disaster declaration. CLIENT agrees to pay the then current prices to purchase all such equipment and to provide all othe hardware, including modems compatible with CLIENT circuits, communications links, and any required software. 3. Testing. SI will allow CLIENT the use of a multiplexer kit for a period not to exceed one week per year, and an additional two (2) hours of non- chargeable test time, for the purpose of on-line testing in comjunction with other CLIENT tests. SI agrees to air-ship the required kit to CLIENT during the week prior to the test, and CLIENT will return air- ship the kit on the first working day following the test. Additional test time will be chargeable at the rates shown in Attachment 1. 4. Fees. CLIENT agrees to pay all expenses for the transportation, installation and utilization of said equipment in annual tests and/or in an actual Disaster, and to pay the fee prescribed in Attachment 1 monthly in advance. Revised 12-20-91 EXHIBIT I INSURANCE The following is a schedule of insurance coverage referred to in the Agreement.
Type of Insurance Coverage Limit Company Remarks 1.Commercial $1,000,000 The Chubb Bodily injury each occurrence Group and property damage; combined limit. $10,000 premises medical each person General Liability $2,000,000 The Chubb Bodily injury/ general aggregate Group property Contents Variable The Chubb Blanket Coverage Group $5,000 deductible. 2.Errors and Omissions $2,000,000 The Chubb $2,000,000 each Group occurrence and aggregate. $250,000 deductible. (Additional coverage to the extent of $23,000,000 as set out in 7 below.) 3.Equipment Blanket Coverage The Chubb An all risks Coverage Group policy covering owned and leased equipment for replacement cost at each location w/$25,000 deductible for all losses from any one event, and $10,000 deductible to breakdown coverage from one event. $500,000 in transit or temporary location. Data Processing Media coverage included. 4.Automobile $1,000,000 The Chubb Scheduled each occurrence Group vehicles-some locations. Hired/non-owned vehicles Comp. deductible/$250 Collision deductible/$250. 5.Worker's Comp.$500,000 The Statutory Limit Cincinnati required by Insurance various state Company laws. 6.Fidelity Coverage $10,000,000 The Chubb Employee Blanket Bond Group Dishonesty $100,000 deductible. 7.Umbrella $25,000,000 The Chubb Fiduciary Group Liability and aircraft coverage specifically excluded. Errors and Omissions covered to the extent of $23,000,000 additional to amount set out in 2 above. *Effective June 1, 1991.
EX-10.12 14 Exhibit 10.12 Correspondent Services Agreement dated November 13, 1996 between Brenton Bank and the Federal Home Loan Bank of Des Moines. 124 EXECUTION COPY CORRESPONDENT SERVICES AGREEMENT This Correspondent Services Agreement ("Agreement"), dated as of November 13, 1996, is entered into by and between Brenton Bank Services Corporation ("Customer"), with principal offices at 6800 Lake Drive, Suite 250 West Des Moines, Iowa 50266, Brenton Bank ('Settlement Agent') with principal offices at 400 Locust, Suite 200, Des Moines, Iowa 50309, and the Federal Home Loan Bank of Des Moines, including all of its Regional Processing Centers wherever located ("Bank"), with principal offices at 907 Walnut Street, Des Moines, Iowa 50309. WHEREAS, Customer desires to authorize the Bank to provide certain correspondent services, as defined herein for the benefit of each of the two (2) Brenton Banks, and references herein to Customer shall, where appropriate, refer to one or more of the Brenton Banks as the case may be; and WHEREAS, Bank desires to provide such services; and WHEREAS, the Bank is permitted to provide such services in accordance with 12 U.S.C. Section 1431 of the Federal Home Loan Bank Act; and WHEREAS, it is desirable that Brenton Bank acts as Settlement Agent for Customer. NOW THEREFORE, Bank and Customer agree as follows: SECTION 1. AGREEMENT SUBJECT TO MASTER TRANSACTION AGREEMENT. This Agreement and any service offered hereunder shall be performed according to the terms of the Master Transaction Agreement ("MTA") entered into between Bank and Customer unless the terms of this Agreement are inconsistent with the terms of the MTA in which case, this Agreement controls. SECTION 2. DEFINITIONS. 2.1. The term "Correspondent Services" as used herein shall mean any service offered by the Bank's Correspondent Services Department at the time of entering into this Agreement including but not limited to Image Processing, Deposit Processing, Inclearing Processing (which may include, if elected by Customer, encoding of over-the-counter items, cash letter processing of transit items, exception item pull and sorting, paid item sorting of exception items, cycle fine sorting, and internal bank item sorting), Lockbox Processing, Proof of Deposit, and Cash Services. Correspondent Services shall also include any services added in the future. 2.2. The term "Item" as used in this Agreement shall include checks drawn on Customer, Customer's internal documents and checks drawn on other financial institutions. The term "Item" shall not include cash or negotiable securities. SECTION 3. CHOICE OF SERVICES. Customer shall elect desired Correspondent Services by designating the desired service(s) on the attached form and executing the applicable service schedule(s) ("Service Schedule(s)") with the Bank. The Service Schedule(s) shall be deemed to be incorporated herein by reference. SECTION 4. AUTHORITY TO CHARGE ACCOUNTS; FEES. The Bank may require that Customer maintain sufficient collected balances with the Bank to cover fees and other charges for any Correspondent Service(s) chosen by Customer. Customer authorizes the Bank to make such debits and credits as are necessary and proper to the Demand Account(s) of Customer EXECUTION COPY in connection with the performance of Correspondent Services under this Agreement, including charges for the payment of fees for such Correspondent Services. Cash deposits are subject to the Bank's final verification which shall be binding. Customer's fees shall be established in the applicable fee schedule(s) referenced in the Service Schedule(s). Unless otherwise provided, such fee schedule(s) may not be changed by the Bank from time to time, during the contract term without the consent of Customer, which will not be unreasonably withheld. In all events, return item fees and deposited item fees may be adjusted if the applicable Federal Reserve Bank fee changes. SECTION 5. AUTHORIZED ARRANGEMENTS. Customer authorizes the Bank to make arrangements with the appropriate third parties (such as Federal Reserve Banks and armored carriers), as the Bank shall determine necessary, in connection with the Correspondent Service(s) the Bank furnishes hereunder. SECTION 6. CUSTOMER RESPONSIBILITIES. Customer shall comply with the circulars, instructions, and other written procedures ( collectively "Procedures") provided by the Bank from time to time, including all reasonable applicable deadlines and timeframes. Customer authorizes the Bank to accept, act upon, and rely upon all orders and instructions given by one or more of Customer's officers, employees, agents or representatives. The Bank may require Customer to submit such instructions in writing. The Bank shall incur no liability to Customer or otherwise as a result of any action by the Bank in accordance with instructions on which the Bank in good faith believes it is authorized to rely pursuant to the terms of this Agreement. It is expressly agreed that the Bank may reject any orders, instructions, or claims that are not properly prepared or submitted pursuant to the Procedures. SECTION 7. LIMITATION OF LIABILITY. The Bank shall have no duties or responsibilities except those expressly set forth in this Agreement and the Procedures. Neither the Bank nor any of its directors, officers, employees or agents shall be liable for any loss Customer incurs arising out of, based upon or resulting from the Bank's performance or failure to perform any act hereunder or under the Procedures or in connection herewith or therewith, unless caused by the negligence or misconduct of the Bank or its directors, officers, agents or employees. The Bank agrees to exercise ordinary care in the performance of its duties and responsibilities under this Agreement and the provision of the Correspondent Services. SECTION 8. RISK OF LOSS. The Bank will not assume any risk of loss in the following circumstances: A. Any loss caused by or resulting from acts of God or any action taken by any government, foreign or domestic, which renders performance as agreed upon by the Bank or any courier impractical; B. Any loss caused by any negligent, dishonest, fraudulent, or criminal act of any employee or agent of Customer; C. Any loss to the extent covered by any insurance, whether primary or excess, carried by Customer; D. Any loss to the Customer due to failure by the Customer to act in conformity with the provisions of any Procedures; E. Any loss caused by the failure to furnish or delay in furnishing any courier or armored vehicle or render any Correspondent Service if prevented by wars, fires, strikes, or other EXECUTION COPY labor trouble, acts of God, or other causes beyond its control, when during the existence of such cases, the Courier determines that in its judgment the same may endanger the safety of cargo entrusted into Courier's possession or the safety of its vehicles or employees; F. Any Item lost, destroyed, or misplaced while in transit before the Item physically arrives at the premises of the Bank. In the event any Item is lost, destroyed, or misplaced as aforesaid and such event is not due to negligence or misconduct by the Bank, Customer shall be solely responsible for the costs and expenses incurred by the Bank in reconstructing any such Item and for any damages or other losses that may be incurred by the Bank due to the collection of such Item. In the event the Bank negligently loses, destroys, or misplaces an Item after the Item physically arrives at the premises of the Bank, the Bank shall be liable only for the reasonable reconstruction costs of the deposit. Reasonable reconstruction costs are considered to be those costs which arise from the reconstruction of a microfilmed deposit. When the Customer cannot provide a microfilmed record of each Item contained in the deposit, the Bank will not be liable for reconstruction costs in excess of $10,000. In no event shall the Bank be liable for the face value amount of any lost or missing Item. G. Any loss which results when the Bank acts as a correspondent for Customer for direct shipments of coin and currency from a Federal Reserve Bank regardless of whether the Bank or the Federal Reserve Bank arranges for transportation of the shipment from the Federal Reserve Bank to the Customer; H. Any loss in excess of $5,000,000 shipped by Armored Carrier to any one office of Customer on any one day or any loss in excess of $50,000 in any one package shipped by registered mail or insured parcel post to any one office of Customer on any one day. I. Any coin and currency loss where Customer failed to properly verify the amount using dual control verification as set forth in the applicable Procedures. J. Any claim arising from a discrepancy in a coin and currency order where Customer fails to notify the Bank, and if applicable, the Armored Courier in writing no later than 5 days after the discrepancy is discovered or should have been discovered. In no case may a claim for a coin and currency loss be asserted unless it is made within one (1) year of the date of the loss. K. Any consequential or incidental damages or loss. SECTION 9. INDEMNIFICATION. Customer agrees to and does hereby indemnify and hold the Bank harmless from and against any and all losses, claims, liability, damages, or expenses (including attorneys' fees) which the Bank may incur in connection with this Agreement and the Correspondent Services provided hereunder, excluding any losses, claims, liability, damages, or expenses caused by the negligence or misconduct of the Bank. Customer's depositors are not third party beneficiaries of this agreement. Bank shall indemnify Customer for any liability, damages, or loss for which Customer is liable to Customer's depositors by reason of Bank's lack of good faith or failure to exercise ordinary care in the data processing service provided pursuant to this Agreement. With respect to the Bank's indemnity obligations herein, the Bank's standards of care, requirement of proximate cause, and measures of damages shall all be as provided for banks by the Iowa Uniform Commercial Code with respect to Bank Deposits and Collections; except, that, it is expressly agreed that the Bank shall in no event be liable for consequential or incidental damages. EXECUTION COPY SECTION 10. ADDITIONAL LEGAL TERMS. In the event the Bank agrees to provide Customer with Correspondent Services that impose additional or modify the legal obligations contained in this Agreement, such additional or modified obligations shall be set forth in writing in the applicable Service Schedule(s). It is expressly agreed that, except to the extent that the Service Schedule(s) modifies or imposes additional legal obligations, the terms of this Agreement shall apply to the provision of the Correspondent Services. SECTION 11. NO WAIVERS. The failure by either party to exercise any right or privilege granted to it under this Agreement shall not operate as a waiver of that right or privilege. SECTION 12. ENTIRE AGREEMENT. This Agreement and all matters incorporated herein by reference constitute the entire Agreement and understanding between the parties hereto relating to the subject matter hereof and supersedes all prior discussions, understandings and agreements, written or oral, between the parties that relate to such subject matter. Any modification to this Agreement, excluding the Procedures, shall not be valid unless it is in writing and signed by both parties hereto. Words used in this Agreement shall be interpreted according to their ordinary and usual meaning, despite and excluding any trade, custom, or usage to the contrary. SECTION 13. GOVERNING LAW AND JURISDICTION. This Agreement shall be governed by the Federal Home Loan Bank Act, the rules, regulations, guidelines, and statements of policy of the Federal Home Loan Bank System and, except to the extent inconsistent therewith, the laws of the State of Iowa without giving effect to the choice of law principles therein included. Customer expressly agrees that any action or proceeding with respect to the performance or non-performance of any term or condition contained herein which is brought by or against the Bank shall be resolved by the United States District Court for the Southern District of Iowa or, if such action or proceeding may not be brought and maintained in said court, by an appropriate district court of the State of Iowa for the County of Polk. SECTION 14. SEVERABILITY. Should any provision of this Agreement be held invalid or unenforceable, the remainder of this Agreement shall remain in effect. SECTION 15. TERMINATION OF THIS AGREEMENT. The term of this Agreement, applicable to each Correspondent Service received by Customer, shall be a period of 5 years and 7 months starting on December 1, 1996 and ending on June 30, 2002. Early Termination Upon Acquisition In the event that Customer, Settlement Agent or Brenton Banks, Inc. is acquired by a third party during the term of the Agreement and the Schedule(s), Customer shall have the option to terminate the Agreement and the Schedule(s) subject to the following: 1. The Customer shall pay to Bank as of the effective date of early termination an early termination fee equal to 20% of the amount computed by multiplying a) the average monthly fees (exclusive of proof encoding fees for which the early termination fee shall be calculated separately) received from Customer over the 3 month period preceding the termination date by b) the number of months remaining in the original contract; and 2. Customer shall also pay a separate proof encoding early termination fee as of the effective date of early termination equal to the sum of (1) and (2) where: EXECUTION COPY (1) is 20% of the amount computed by multiplying: a)the average monthly fee over the 3 month period preceding the termination date based on an encoding fee of 1.6 cents per item by b)the number of months remaining in the original contract term; and (2) is the difference between: a) the fees that Customer would have paid for the portion of the contract period beginning on December 1, 1996 and ending on the effective date of early termination date if Customer had paid an encoding fee of 1.6 cents per item and b) the actual monthly fees received from Customer for proof encoding over the actual portion of the contract term immediately preceding the early termination date. Early Termination for Customer Convenience In the event that Customer desires to terminate the Agreement and the Schedule(s) at its convenience prior to the expiration of the term, then Customer shall have the option to terminate the Agreement and the Schedule(s) subject to the following: 1. Customer shall have no right to terminate the contract for convenience during the first two (2) years of the contract. 2. After the first 2 years of the contract term, Customer may terminate the contract for its convenience as follows: Customer must give the Bank 6 months prior written notice of its intent to exercise this option. Then, Customer shall pay the Bank an early termination fee as of the effective date of early termination equal to 50% of the revenue that the Bank would have received over the remaining contract term for all services provided to Customer. Customer and the Bank acknowledge and agree that the early termination fees computed as provided in section 15 are in lieu of Bank's losses and costs arising from such an early termination, that such costs are incapable of calculation as of the effective date of the Agreement, and that the fees listed herein are reasonable liquidated damages and are not a penalty. In the event Customer is placed under the control of a state or federally appointed conservator, receiver, or other legal custodian, the Bank may immediately give written notice of termination to such conservator, receiver, or other legal custodian unless instructed otherwise in writing by such conservator, receiver, or other legal custodian, such termination to be effective on the date of such notice. SECTION 16. PERFORMANCE STANDARDS. The Bank will establish telecommunications with Customer or its service agency as specified and at no additional cost to Customer so that the Bank can electronically transfer Customer's transactions to the Customer or its service agency. These transmissions will be at no cost to the Customer only as long as the Customer or its service agency remain in the same metropolitan area as the Bank. The Bank will complete the last transmission of data by 12:30 am with a goal of 11:30 p.m. provided that the Customer is able to accept transmission delivery. The Bank and Customer agree that timely and accurate submission of input and output is essential to satisfactory performance under this Agreement and the Schedule(s). The following are the performance standards to be measured: a. The transmission time schedules described above will be met. b. Proof encoding accuracy rate of 99.985% with a goal of 99.993%. EXECUTION COPY c. Statement finesort accuracy of 99.985% with a goal of 99.993%. d. Statement rendering accuracy of 99.96% with a goal of 99.98%. SECTION 17. REMEDIES. If the Bank fails to meet the performance standards in Article 16, Customer shall notify in writing the Bank the specific nature of the performance failure. The Bank shall have two (2) months from the receipt of notice to cure the failure to perform. If the failure to perform is not cured within the cure period, or if the Bank fails to perform any of the other provisions hereof after two months written notice, Customer may terminate this Agreement with ninety (90) days written notice to the Bank. If Customer terminates due to the Bank's failure to cure its performance failure, then the fees for "Early Termination" set forth in section 15 of this Agreement shall not apply. The Bank may terminate this Agreement if Customer fails to pay any fees under this Agreement for two consecutive months and fails to cure within two (2) months after written notice from the Bank of the failure to pay any fees. Termination shall not relieve either party of its indemnification obligations hereunder. IN WITNESS WHEREOF, Customer and Bank, each acting through its respective duly authorized representative(s), have caused this Agreement to be signed in their names and delivered as of the date first above written. FEDERAL HOME LOAN BANK Brenton Bank Services Corporation OF DES MOINES Full Corporate Name of Customer By:__________________________ By:__________________________ Title: Senior Vice President Title: Vice President David G. Reeves Max A. Reckling Typed Name of Signer Typed Name of Signer By:__________________________ By:__________________________ Title:_______________________ Title:_______________________ _____________________________ _____________________________ Typed Name of Signer Typed Name of Signer Correspondent Services Selected: X Image Processing: Printing, verifying and mailing statement text and check images and electronic retrieval of images. ____________ Cash Services: Receiving orders and arranging delivery and pick-up of currency and coin for Customer. ____________ Lockbox Processing: Receiving, screening, capturing, and balancing Items deposited in the Bank's lockbox on behalf of Customer and electronic transmission of information to Customer or its data servicer. X Proof of Deposit: Capture and balancing of over-the-counter customer Items; transmission of posting data and float information to the data servicer; finesorting, etc. X Inclearing Processing: Acting as Customer's agent, capture and transmission (if Customer directs) of inclearing items to data servicer; return item handling; bulk filing, finesorting, truncation, exception processing, etc. X Deposit Processing: Encoding and processing of transit checks. X Statement Rendering Customer acknowledges that the attached Schedule(s) are subject to the terms and conditions of the Correspondent Services Agreement ("Agreement") and other agreements incorporated therein. Customer acknowledges that if the Bank approves the attached Schedule(s) by signing below, this will constitute the agreement of the Customer and the Bank to the Correspondent Service(s) on the terms set forth herein and that this Schedule will become part of the Agreement. FEDERAL HOME LOAN BANK ___________________________ OF DES MOINES (Corporate Name of Customer) By:________________________ By:________________________ Title: Senior Vice President Title: Vice President Date: November 13, 1996 Date: November 13, 1996 Schedule to the Correspondent Services Agreement dated November 13, 1996 , by and between the Federal Home Loan Bank of Des Moines and Brenton Bank Services Corporation. I. Proof of Deposit Options: MICR Encoding Yes X No._____ Transit Item Processing Yes X No _____ Automated Exception Pull Yes X No _____ (based on data provided by the data servicer) Cycle Sort Yes X No _____ (based on data provided by the data servicer or by MICR line identification) Fine Sorting Item Type: On-Us Debits Yes X No _____ Frequency Daily On-Us Credits Yes X No _____ Frequency Daily General Ledger Tickets Yes X No _____ Frequency Daily Cash Tickets Yes _____ No X Frequency ________ Other On-Us Items (Identify) Yes X No _____ Savings, IRAs, Installment Credit Frequency Daily and Safe Deposit Box per current process Serial Sorting Yes X No _____ Posting File Format: All Items File Yes X No _____ or Float File Yes _____ No _____ On-Us Return Item Handling Yes X No _____ Large Dollar Notification Yes _____ No _____ II. Pricing The schedule of fees for performing these services is set forth in Exhibit A. These fees are fixed during the first three years of the Agreement with price increases in years four (4) and five (5), each in an amount not to exceed the annualized increase in the Consumer Price Index - All Urban Consumers (CPI-U) - U.S. City Average All Items. In the event of a decrease in the CPI-U after year three (3), the fees set forth in Exhibit A shall be paid. III. Term The term for provision of this service shall be for a period of five (5) years and 7 months starting on 12-1-96 and ending 6-30-2002. IV. Other 1. The Bank reserves the right to charge Customer at $75 per hour for any custom programming requested by the Customer. 2. The Customer will provide all proof machine endorsement stamps necessary to identify the Customer as the bank of first deposit. 3. The Bank will microfilm the front and back of all over-the-counter items received form Customer and all Customer inclearings received from the Federal Reserve Bank and clearinghouse institutions at no additional cost to Customer. Bank will retain a copy of such microfilm and will deliver original to Customer. Microfiche of output reporting will also be provided at no cost to Customer as will tape input for optical archive. Superfiche will be provided on either microfiche or tape, but not on both. This Service Schedule may not be modified except with the express written consent of the Bank and Customer. Schedule to the Correspondent Services Agreement dated _______________ , by and between the Federal Home Loan Bank of Des Moines and Brenton Bank Services Corporation. I. Image Processing Options: Create Image Statement Pages Yes _____ No _____ Archive - Create CD ROM Yes _____ No _____ Handle Statement Inserts Yes _____ No _____ Use FHLB Supplied Text Paper Yes _____ No _____ Simplex or Duplex Printing (Choose One) Simplex _____ Duplex ____ II. Pricing See Attached Exhibit C. The fees shown in attached Exhibit C shall expire on December 31, 1997 if the conversion to image processing has not begun during the calendar year 1997. If image processing begins prior to December 31, 1997, then Customer shall pay the fees set forth in Exhibit C for the period beginning on the date image processing is first provided to Customer and ending on November 30, 1999. Thereafter, Customer shall pay the Bank's standard fees then in effect. If image conversion occurs after December 31, 1997, then Customer's image processing fees will be based on the Bank's standard fees in effect at the time conversion takes place. III. Term The term for provision of this service shall coincide with the terms of POD processing. IV. Other Detailed procedure and handling instructions will be developed and mutually agreed upon prior to conversion. This Service Schedule may not be modified except with the express written consent of the Bank and Customer Schedule to the Correspondent Services Agreement dated November 13, 1996, by and between the Federal Home Loan Bank of Des Moines and Brenton Bank Services Corporation. Statement Rendering Services: I. Pricing The schedule of fees for performing these services is set forth in Exhibit D. These fees are fixed during the first three years of the Agreement with price increases in years four (4) and five (5) each in an amount not to exceed the annualized increase in the Consumer Price Index - All Urban Consumers (CPI-U) - U.S. City Average All Items. In the event of a decrease in the CPI-U after year three (3), the fees set forth in Exhibit D shall be paid. II. Term The term for provision of this service shall coincide with POD Processing. III. Other Except for "crippled statements", the statement rendering process shall be completed and the statements available for return to the customer or delivery to the post office within two business days after receipt of the DDA statements. ("Crippled Statements" are defined as statements not containing the correct number of enclosures or for any reason the statement and its contents will be handled according to mutually agreed upon procedures. The Service Schedule may not be modified except with the express written consent of the Bank and Customer. Federal Home Loan Bank Des Moines Schedule to the Correspondent Services Agreement dated 11/13/96, by and between the Federal Home Loan Bank of Des Moines and BRENTON BANK SERVICES CORPORATION I. Inclearing Processing Options: In addition to the Settlement and Capture of Items, we elect to receive the following ancillary services. Options may be changed at any time by notifying the Bank in writing. Truncation Yes _____ No _____ Optional X Fine Sorting Yes X No _____ If yes, indicate frequency: Daily _____ Monthly _____ Date of Month_____________________ Cycle X Cycle Dates 2-19 and end of month Sequence Numbers Sort Yes X No _____ Account Separators Yes X No _____ Large Item Verification Items $ 100M and Over Yes X No _____ Process and Microfilm Counter Items Yes X No _____ Return Microfilm Yes X No _____ Settlement Yes X No _____ Truncated Items Returned Yes X No _____ Truncated Items Returned Sorted or Unsorted (Check One) Sorted _____ Unsorted X Return Item Processing Regulation J Notice Yes _____ No _____ Settlement Yes X No _____ Qualified Yes X No _____ Non-Qualified Yes _____ No _____ Statement Rendering Yes X No _____ FHLB 10/30/96 Federal Home Loan Bank Des Moines II. Pricing The schedule of fees for performing these services is set forth in Exhibit A. These fees are fixed during the first three years of the Agreement with price increases in years four (4) and five (5), each in an amount not to exceed the annualized increase in the Consumer Price Index-All Urban Consumers (CPI-U) - U.S. City Average All Items. In the event of a decrease in the CPI-U after year three (3), the fees set forth in Exhibit A shall be paid. III. Term The term for provision of this service shall be a period of 5 years and 7 months starting on 12-1-96 and ending on 6-30-2002. This Service Schedule may not be modified except with the express written consent of the Bank and Customer. FHLB 10/30/96 Exhibit A Federal Home Loan Bank Des Moines ITEM PROCESSING FEE SCHEDULE FOR BRENTON BANKS POD Processing Fees ** Encoding Fee: Encoding $0.014 per item** Year 1 - $0.014 per item Year 2 - $0.014 per item POD Capture $0.007 per item Year 3 - $0.016 per item Year 4 - $0.018 per item Inclearings Capture $0.005 per item Year 5 - $0.018 per item Exception / Cycle Sort $0.0015 per item Finesort $0.0045 per item Reject Re-Entry $0.04 per item ** Reject Repair (On-Us Items) $0.05 per item Deposit Processing Fees Deposited Item Charges: Local Items $0.0025 per item Regional Items $0.0125 per item Transit Items $0.050 per item Relationship Fees - Deposit Slips $0.35 Forward Collection Return Items* Local Items $0.20 per item Regional Items $0.20 per item Transit Items $0.50 per item Deposit / Customers Corrections $0.25 per correction Other Standard Relationship Fees See attached Demand Deposit Fee Schedule (Exhibit B) * Subject to change if Federal Reserve Bank fees change. *** Up to a maximum of .9% of total prime volume Exhibit B Federal Home Loan Bank of Des Moines Demand Account Analysis Fee Schedule September 1, 1996 Account Maintenance $ 25.00 Account Reconciliation 35.00 Electronic Cash Manager (ECM) Connect charges Non-ECM Distribution of Reports 75.00 Drafts Paid Truncated 0.045 Non-Truncated 0.055 Stop Payments 7.00 Ledger Entries - Credits 0.35 Ledger Entries - Debits 0.15 Bank Wires In 3.00 Bank Wires Out 4.00 ACH Settlement Charges 1.00 Special Cut-Off Statements 10.00 Account Reconciliation Tape Issues 0.015 Issue Encoding 0.0225 Pre-Encoded Issues 0.015 Collections Bonds/Coupons Per Envelope Local/Government 5.00 Out-of-Town 7.00 Domestic/Checks 15.00 (Plus Actual) Foreign 25.00 (Plus Actual) Miscellaneous Actual Demand 4/93,6/94,2/96,4/96,9/96 Exhibit c Federal Home Loan Bank Des Moines Image Products and Services Fee Schedule For Brenton Banks RETAIL / CONSUMER ACCOUNTS - Per account $0.38 (includes capture, printing image and text pages and statement rendition) COMMERCIAL / BUSINESS ACCOUNTS Base Fee Per Account $0.38 (includes capture,3 sides of printing and statement rendition) Per side to print over 3 sides $0.13 (Note: the per account fee for retail and commercial accounts assumes the use of negative confirmation techniques. ) ARCHIVE: Archival Per Item $.005 CD ROM 9.00 Viewing Software $950 STATEMENT INSERTS $.01 OTHER FEES: Minimum Monthly Billing $500 One-Time set-up fee $1,500 to $3,000 Maintenance Fee $25 / hour One hour minimum Data Processor Interface Fee Actual / Negotiated Postage Actual / Passthrough Statement Text Paper Customer Supplied or Passthrough Image Page Paper Actual / Passthrough Exhibit D Federal Home Loan Bank Des Moines STATEMENT RENDERING FEE SCHEDULE FOR BRENTON BANKS Statements Per Month, Non-Truncated First 5,000 $0.18 Next 5,000 $0.165 Over 10,000 $0.15 Statements Per Month - Truncated $0.05 Statement Inserts $0.01 Statement Printing (Laser Printer) Customer provided paper $0.03 /page FHLB provided paper $0.04 /page Custom forms / logos Actual cost Courier, Postage and Envelopes Actual cost EX-10.13 15 Exhibit 10.13 Adoption Agreement #003 - Nonstandardized Code Section 401(k) Profit Sharing Plan, effective November 14, 1996. 142 ADOPTION AGREEMENT #003 NONSTANDARDIZED CODE SECTION 401(k) PROFIT SHARING PLAN The undersigned, BRENTON BANKS, INC. ("Employer"), by executing this Adoption Agreement, elects to become a participating Employer in the BRENTON BANK Defined Contribution Master Plan (basic plan document #01) by adopting the accompanying Plan and Trust in full as if the Employer were a signatory to that Agreement. The Employer makes the following elections granted under the provisions of the Master Plan. ARTICLE I DEFINITIONS 1.02 TRUSTEE. The Trustee executing this Adoption Agreement is: (Choose (a) or (b)) [ x ] (a) A discretionary Trustee. See Section 10.03[A] of the Plan. [ ] (b) A nondiscretionary Trustee. See Section 10.03[B] of the Plan. [Note: The Employer may not elect Option (b) if a Custodian executes the Adoption Agreement.] 1.03 PLAN. The name of the Plan as adopted by the Employer is BRENTON BANKS, INC. EMPLOYEES' RETIREMENT PLAN. 1.07 EMPLOYEE. The following Employees are not eligible to participate in the Plan: (Choose (a) or at least one of (b) through (g)) [ X ] (a) No exclusions. [ ] (b) Collective bargaining employees (as defined in Section 1.07 of the Plan). [Note: If the Employer excludes union employees from the Plan, the Employer must be able to provide evidence that retirement benefits were the subject of good faith bargaining.] [ ] (c) Nonresident aliens who do not receive any earned income (as defined in Code Section 911(d)(2)) from the Employer which constitutes United States source income (as defined in Code Section 861(a)(3)). [ ] (d) Commission Salesmen. [ ] (e) Any Employee compensated on a salaried basis. [ ] (f) Any Employee compensated on an hourly basis. [ ] (g) (Specify) _________________________. Leased Employees. Any Leased Employee treated as an Employee under Section 1.31 of the Plan, is: (Choose (h) or (i)) [ X ] (h) Not eligible to participate in the Plan. [ ] (i) Eligible to participate in the Plan, unless excluded by reason of an exclusion classification elected under this Adoption Agreement Section 1.07. Related Employers. If any member of the Employer's related group (as defined in Section 1.30 of the Plan) executes a Participation Agreement to this Adoption Agreement, such member's Employees are eligible to participate in this Plan, unless excluded by reason of an exclusion classification elected under this Adoption Agreement Section 1.07. In addition: (Choose (j) or (k)) [ X ] (j) No other related group member's Employees are eligible to participate in the Plan. [ ] (k) The following nonparticipating related group member's Employees are eligible to participate in the Plan unless excluded by reason of an exclusion classification elected under this Adoption Agreement Section 1.07: __________________. 1.12 COMPENSATION. Treatment of elective contributions. (Choose (a) or (b)) [ X ] (a) "Compensation" includes elective contributions made by the Employer on the Employee's behalf. [ ] (b) "Compensation" does not include elective contributions. Modifications to Compensation definition. (Choose (c) or at least one of (d) through (j)) [ ] (c) No modifications other than as elected under Options (a) or (b). [ ] (d) The Plan excludes Compensation in excess of $_____________. [ ] (e) In lieu of the definition in Section 1.12 of the Plan, Compensation means any earnings reportable as W-2 wages for Federal income tax withholding purposes, subject to any other election under this Adoption Agreement Section 1.12. [ ] (f) The Plan excludes bonuses. [ ] (g) The Plan excludes overtime. [ ] (h) The Plan excludes Commissions. [ ] (i) Compensation will not include Compensation from a related employer (as defined in Section 1.30 of the Plan) that has not executed a Participation Agreement in this Plan unless, pursuant to Adoption Agreement Section 1.07, the Employees of that related employer are eligible to participate in this Plan. [ X ] (j) (Specify) The term "Compensation" shall mean all wages, salaries, and other payments for personal services actually rendered in the course of employment with the Employer, including bonuses, commissions, overtime pay, incentive pay, benefit payments under the Company's short- term disability plan and salary reduction contributions voluntarily authorized as contributions to this Plan or to the Employer's Cafeteria Plan by eligible employees. This definition of compensation does not include: stock options, club dues, automobile, educational assistance, moving expenses, split dollar life insurance, severance pay, or benefits under the Employer's employee stock purchase program, long term stock compensation program, group term life insurance plan, employee P.C. purchase plan or other similar fringe benefits. For any self employed individual, "Compensation" shall mean Earned Income. If, for any Plan Year, the Plan uses permitted disparity in the contribution or allocation formula elected under Article III, any election of Options (f), (g), (h) or (j) is ineffective for such Plan Year with respect to any Nonhighly Compensated Employee. Special definition for matching contributions. "Compensation" for purposes of any matching contribution formula under Article III means: (Choose (k) or (l) only if applicable) [ x ] (k) Compensation as defined in this Adoption Agreement Section 1.12. [ ] (l) (Specify)______________________________. Special definition for salary reduction contributions. An Employee's salary reduction agreement applies to his Compensation determined prior to the reduction authorized by that salary reduction agreement, with the following exceptions: (Choose (m) or at least one of (n) or (o), if applicable) [ X ] (m) No exceptions. [ ] (n) If the Employee makes elective contributions to another plan maintained by the Employer, the Advisory Committee will determine the amount of the Employee's salary reduction contribution for the withholding period: (Choose (1) or (2)) [ ] (1) After the reduction for such period of elective contributions to the other plan(s). [ ] (2) Prior to the reduction for such period of elective contributions to the other plan(s). [ ] (o) (Specify)_____________________________. 1.17 PLAN YEAR/LIMITATION YEAR. Plan Year. Plan Year means: (Choose (a) or (b)) [ X ] (a) The 12 consecutive month period ending every December 31. [ ] (b) (Specify)__________________________. Limitation Year. The Limitation Year is: (Choose (c) or (d)) [ x ] (c) The Plan Year. [ ] (d) The 12 consecutive month period ending every _____. 1.18 EFFECTIVE DATE. New Plan. The "Effective Date" of the Plan is N/A. Restated Plan. The restated Effective Date is January 1, 1996. This Plan is a substitution and amendment of an existing retirement plan(s) originally established December 22, 1986. [Note: See the Effective Date Addendum.] 1.27 HOUR OF SERVICE. The crediting method for Hours of Service is: (Choose (a) or (b)) [ x ] (a) The actual method. [ ] (b) The equivalency method, except: [ ] (1) No exceptions. [ ] (2) The actual method applies for purposes of: (Choose at least one) [ ] (i) Participation under Article II. [ ] (ii) Vesting under Article V. [ ] (iii) Accrual of benefits under Section 3.06. [Note: On the blank line, insert "daily," "weekly," "semi-monthly payroll periods" or "monthly."] 1.29 SERVICE FOR PREDECESSOR EMPLOYER. In addition to the predecessor service the Plan must credit by reason of Section 1.29 of the Plan, the Plan credits Service with the following predecessor employer(s): Ames Savings Bank, FSB . Service with the designated predecessor employer(s) applies: (Choose at least one of (a) or (b); (c) is available only in addition to (a) or (b)) [ x ] (a) For purposes of participation under Article II. [ x ] (b) For purposes of vesting under Article V. [ ] (c) Except the following Service: ________________________. [Note: If the Plan does not credit any predecessor service under this provision, insert "N/A" in the first blank line. The Employer may attach a schedule to this Adoption Agreement, in the same format as this Section 1.29, designating additional predecessor employers and the applicable service crediting elections.] 1.31 LEASED EMPLOYEES. If a Leased Employee is a Participant in the Plan and also participates in a plan maintained by the leasing organization: (Choose (a) or (b)) [N/A] (a) The Advisory Committee will determine the Leased Employee's allocation of Employer contributions under Article III without taking into account the Leased Employee's allocation, if any, under the leasing organization's plan. [ ] (b) The Advisory Committee will reduce a Leased Employee's allocation of Employer nonelective contributions (other than designated qualified nonelective contributions) under this Plan by the Leased Employee's allocation under the leasing organization's plan, but only to the extent that allocation is attributable to the Leased Employee's service provided to the Employer. The leasing organization's plan: [ ] (1) Must be a money purchase plan which would satisfy the definition under Section 1.31 of a safe harbor plan, irrespective of whether the safe harbor exception applies. [ ] (2) Must satisfy the features and, if a defined benefit plan, the method of reduction described in an addendum to this Adoption Agreement, numbered 1.31. ARTICLE II EMPLOYEE PARTICIPANTS 2.01 ELIGIBILITY. Eligibility conditions. To become a Participant in the Plan, an Employee must satisfy the following eligibility conditions: (Choose (a) or (b) or both; (c) is optional as an additional election) [ X ] (a) Attainment of age 21 (specify age, not exceeding 21). [ X ] (b)Service requirement. (Choose one of (1) through (3)) [ ] (1) One Year of Service. [ ] (2) ____months (not exceeding 12) following the Employee's Employment Commencement Date. [ X ] (3) One Hour of Service. [ X ] (c) Special requirements for non-401(k) portion of plan. (Make elections under (1) and under (2)) (1) The requirements of this Option (c) apply to participation in: (Choose at least one of (i) through (iii)) [ X ] (i) The allocation of Employer nonelective contributions and Participant forfeitures. [ X ] (ii) The allocation of Employer matching contributions (including forfeitures allocated as matching contributions). [ X ] (iii) The allocation of Employer qualified nonelective contributions. (2) For participation in the allocations described in (1), the eligibility conditions are: (Choose at least one of (i) through (iv)) [ X ] (i) 1 (one or two) Year(s) of Service, without an intervening Break in Service (as described in Section 2.03(A) of the Plan) if the requirement is two Years of Service. [ ] (ii) ____ months (not exceeding 24) following the Employee's Employment Commencement Date. [ ] (iii) One Hour of Service. [ X ] (iv) Attainment of age 21 (Specify age, not exceeding 21). Plan Entry Date. "Plan Entry Date" means the Effective Date and: (Choose (d), (e) or (f)) [ X ] (d) Semi-annual Entry Dates. The first day of the Plan Year and the first day of the seventh month of the Plan Year. [ ] (e) The first day of the Plan Year. [ ] (f) (Specify entry dates) _______________________. Time of Participation. An Employee will become a Participant (and, if applicable, will participate in the allocations described in Option (c)(1)), unless excluded under Adoption Agreement Section 1.07, on the Plan Entry Date (if employed on that date): (Choose (g), (h) or (i)) [ X ] (g) immediately following [ ] (h) immediately preceding [ ] (i) nearest the date the Employee completes the eligibility conditions described in Options (a) and (b) (or in Option (c)(2) if applicable) of this Adoption Agreement Section 2.01. [Note: The Employer must coordinate the selection of (g), (h) or (i) with the "Plan Entry Date" selection in (d), (e) or (f). Unless otherwise excluded under Section 1.07, the Employee must become a Participant by the earlier of: (1) the first day of the Plan Year beginning after the date the Employee completes the age and service requirements of Code Section 410(a); or (2) 6 months after the date the Employee completes those requirements.] Dual eligibility. The eligibility conditions of this Section 2.01 apply to: (Choose (j) or (k)) [ X ] (j) All Employees of the Employer, except: (Choose (1) or (2)) [ X ] (1) No exceptions. [ ] (2) Employees who are Participants in the Plan as of the Effective Date. [ ] (k) Solely to an Employee employed by the Employer after _______. If the Employee was employed by the Employer on or before the specified date, the Employee will become a Participant: (Choose (1), (2) or (3)) [ ] (1) On the latest of the Effective Date, his Employment Commencement Date or the date he attains age ____ (not to exceed 21). [ ] (2) Under the eligibility conditions in effect under the Plan prior to the restated Effective Date. If the restated Plan required more than one Year of Service to participate, the eligibility condition under this Option (2) for participation in the Code Section 401(k) arrangement under this Plan is one Year of Service for Plan Years beginning after December 31, 1988. [For restated plans only] [ ] (3) (Specify) __________________. 2.02 YEAR OF SERVICE - PARTICIPATION. Hours of Service. An Employee must complete: (Choose (a) or (b)) [ X ] (a) 1,000 Hours of Service [ ] (b) _____ Hours of Service during an eligibility computation period to receive credit for a Year of Service. [Note: The Hours of Service requirement may not exceed 1,000.] Eligibility computation period. After the initial eligibility computation period described in Section 2.02 of the Plan, the Plan measures the eligibility computation period as: (Choose (c) or (d)) [ ] (c) The 12 consecutive month period beginning with each anniversary of an Employee's Employment Commencement Date. [ x ] (d) The Plan Year, beginning with the Plan Year which includes the first anniversary of the Employee's Employment Commencement Date. 2.03 BREAK IN SERVICE - PARTICIPATION. The Break in Service rule described in Section 2.03(B) of the Plan: (Choose (a) or (b)) [ x ] (a) Does not apply to the Employer's Plan. [ ] (b) Applies to the Employer's Plan. 2.06 ELECTION NOT TO PARTICIPATE. The Plan: (Choose (a) or (b)) [ x ] (a) Does not permit an eligible Employee or a Participant to elect not to participate. [ ] (b) Does permit an eligible Employee or a Participant to elect not to participate in accordance with Section 2.06 and with the following rules: (Complete (1), (2), (3) and (4)) (1) An election is effective for a Plan Year if filed no later than ______. (2) An election not to participate must be effective for at least ____ Plan Year(s). (3) Following a re-election to participate, the Employee or Participant: [ ] (i) May not again elect not to participate for any subsequent Plan Year. [ ] (ii) May again elect not to participate, but not earlier than the _____ Plan Year following the Plan Year in which the re-election first was effective. (4) (Specify)_________________. [Insert "N/A" if no other rules apply]. ARTICLE III EMPLOYER CONTRIBUTIONS AND FORFEITURES 3.01 AMOUNT. Part I. [Options (a) through (g)] Amount of Employer's contribution. The Employer's annual contribution to the Trust will equal the total amount of deferral contributions, matching contributions, qualified nonelective contributions and nonelective contributions, as determined under this Section 3.01. (Choose any combination of (a), (b), (c) and (d), or choose (e)) [ x ] (a) Deferral contributions (Code Section 401(k) arrangement). (Choose (1) or (2) or both) [ x ] (1) Salary reduction arrangement. The Employer must contribute the amount by which the Participants have reduced their Compensation for the Plan Year, pursuant to their salary reduction agreements on file with the Advisory Committee. A reference in the Plan to salary reduction contributions is a reference to these amounts. [ ] (2) Cash or deferred arrangement. The Employer will contribute on behalf of each Participant the portion of the Participant's proportionate share of the cash or deferred contribution which he has not elected to receive in cash. See Section 14.02 of the Plan. The Employer's cash or deferred contribution is the amount the Employer may from time to time deem advisable which the Employer designates as a cash or deferred contribution prior to making that contribution to the Trust. [ x ] (b) Matching contributions. The Employer will make matching contributions in accordance with the formula(s) elected in Part II of this Adoption Agreement Section 3.01. [ x ] (c) Designated qualified nonelective contributions. The Employer, in its sole discretion, may contribute an amount which it designates as a qualified nonelective contribution. [ x ] (d) Nonelective contributions. (Choose any combination of (1) through (4)) [ x ] (1) Discretionary contribution. The amount (or additional amount) the Employer may from time to time deem advisable. [ ] (2) The amount (or additional amount) the Employer may from time to time deem advisable, separately determined for each of the following classifications of Participants: (Choose (i) or (ii)) [ ] (i) Nonhighly Compensated Employees and Highly Compensated Employees. [ ] (ii) (Specify classifications) ___________. Under this Option (2), the Advisory Committee will allocate the amount contributed for each Participant classification in accordance with Part II of Adoption Agreement Section 3.04, as if the Participants in that classification were the only Participants in the Plan. [ x ] (3) 4.5% of the Compensation of all Participants under the Plan, determined for the Employer's taxable year for which it makes the contribution. [Note: The percentage selected may not exceed 15%.] [ ] (4) _____% of Net Profits but not more than $_______. [ ] (e) Frozen Plan. This Plan is a frozen Plan effective _____. The Employer will not contribute to the Plan with respect to any period following the stated date. Net Profits. The Employer: (Choose (f) or (g)) [ x ] (f) Need not have Net Profits to make its annual contribution under this Plan. [ ] (g) Must have current or accumulated Net Profits exceeding $_____ to make the following contributions: (Choose at least one) [ ] (1) Cash or deferred contributions described in Option (a)(2). [ ] (2) Matching contributions described in Option (b), except: _____. [ ] (3) Qualified nonelective contributions described in Option (c). [ ] (4) Nonelective contributions described in Option (d). The term "Net Profits" means the Employer's net income or profits for any taxable year determined by the Employer upon the basis of its books of account in accordance with generally accepted accounting practices consistently applied without any deductions for Federal and state taxes upon income or for contributions made by the Employer under this Plan or under any other employee benefit plan the Employer maintains. The term "Net Profits" specifically excludes ___________________. [Note: Enter "N/A" if no exclusions apply.] If the Employer requires Net Profits for matching contributions and the Employer does not have sufficient Net Profits under Option (g), it will reduce the matching contribution under a fixed formula on a prorata basis for all Participants. A Participant's share of the reduced contribution will bear the same ratio as the matching contribution the Participant would have received if Net Profits were sufficient bears to the total matching contribution all Participants would have received if Net Profits were sufficient. If more than one member of a related group (as defined in Section 1.30) execute this Adoption Agreement, each participating member will determine Net Profits separately but will not apply this reduction unless, after combining the separately determined Net Profits, the aggregate Net Profits are insufficient to satisfy the matching contribution liability. "Net Profits" includes both current and accumulated Net Profits. Part II. [Options (h) through (j)] Matching contribution formula. [Note: If the Employer elected Option (b), complete Options (h), (i) and (j).] [ x ] (h) Amount of matching contributions. For each Plan Year, the Employer's matching contribution is: (Choose any combination of (1), (2), (3), (4) and (5)) [ ] (1) An amount equal to _____% of each Participant's eligible contributions for the Plan Year. [ x ] (2) An amount equal to 100% of each Participant's first tier of eligible contributions for the Plan Year, plus the following matching percentage(s) for the following subsequent tiers of eligible contributions for the Plan 50% for the second tier. [ ] (3) Discretionary formula. [ ] (i) An amount (or additional amount) equal to a matching percentage the Employer from time to time may deem advisable of the Participant's eligible contributions for the Plan Year. [ ] (ii) An amount (or additional amount) equal to a matching percentage the Employer from time to time may deem advisable of each tier of the Participant's eligible contributions for the Plan Year. [ ] (4) An amount equal to the following percentage of each Participant's eligible contributions for the Plan Year, based on the Participant's Years of Service: Number of Years of Service Matching Percentage _____ _____ _____ _____ _____ _____ _____ _____ The Advisory Committee will apply this formula by determining Years of Service as follows: ____________________. [ ] (5) A Participant's matching contributions may not: (Choose (i) or (ii)) [ ] (i) Exceed ___________________. [ ] (ii) Be less than _____________. Related Employers. If two or more related employers (as defined in Section 1.30) contribute to this Plan, the related employers may elect different matching contribution formulas by attaching to the Adoption Agreement a separately completed copy of this Part II. Note: Separate matching contribution formulas create separate current benefit structures that must satisfy the minimum participation test of Code Section 401(a)(26).] [ x ] (i) Definition of eligible contributions. Subject to the requirements of Option (j), the term "eligible contributions" means: (Choose any combination of (1) through (3)) [ x ] (1) Salary reduction contributions. [ ] (2) Cash or deferred contributions (including any part of the Participant's proportionate share of the cash or deferred contribution which the Employer defers without the Participant's election). [ ] (3) Participant mandatory contributions, as designated in Adoption Agreement Section 4.01. See Section 14.04 of the Plan. [ x ] (j) Amount of eligible contributions taken into account. When determining a Participant's eligible contributions taken into account under the matching contributions formula(s), the following rules apply: (Choose any combination of (1) through (4)) [ ] (1) The Advisory Committee will take into account all eligible contributions credited for the Plan Year. [ ] (2) The Advisory Committee will disregard eligible contributions exceeding ____________. [ x ] (3) The Advisory Committee will treat as the first tier of eligible contributions, an amount not exceeding: 2% . The subsequent tiers of eligible contributions are: 2% . [ ] (4) (Specify) __________. Part III. [Options (k) and (l)]. Special rules for Code Section 401(k) Arrangement. (Choose (k) or (l), or both, as applicable) [ x ] (k) Salary Reduction Agreements. The following rules and restrictions apply to an Employee's salary reduction agreement: (Make a selection under (1), (2), (3) and (4)) (1) Limitation on amount. The Employee's salary reduction contributions: (Choose (i) or at least one of (ii) or (iii)) [ ] (i) No maximum limitation other than as provided in the Plan. [ x ] (ii) May not exceed 13% of Compensation for the Plan Year, subject to the annual additions limitation described in Part 2 of Article III and the 402(g) limitation described in Section 14.07 of the Plan. [ ] (iii) Based on percentages of Compensation must equal at least _____. (2) An Employee may revoke, on a prospective basis, a salary reduction agreement: (Choose (i), (ii), (iii) or (iv)) [ ] i) Once during any Plan Year but not later than _____ of the Plan Year. [ ] (ii) As of any Plan Entry Date. [ x ] (iii) As of the first day of any month. [ ] (iv) (Specify, but must be at least once per Plan Year) _____. (3) An Employee who revokes his salary reduction agreement may file a new salary reduction agreement with an effective date: (Choose (i), (ii), (iii) or (iv)) [ ] (i) No earlier than the first day of the next Plan Year. [ x ] (ii) As of any subsequent Plan Entry Date. [ ] (iii) As of the first day of any month subsequent to the month in which he revoked an Agreement. [ ] (iv) (Specify, but must be at least once per Plan Year following the Plan Year of revocation) _______________. (4) A Participant may increase or may decrease, on a prospective basis, his salary reduction percentage or dollar amount: (Choose (i), (ii), (iii) or (iv)) [ ] (i) As of the beginning of each payroll period. [ ] (ii) As of the first day of each month. [ x ] (iii) As of any Plan Entry Date. [ ] (iv) (Specify, but must permit an increase or a decrease at least once per Plan Year) __________. [ ] (l) Cash or deferred contributions. For each Plan Year for which the Employer makes a designated cash or deferred contribution, a Participant may elect to receive directly in cash not more than the following portion (or, if less, the 402(g) limitation described in Section 14.07 of the Plan) of his proportionate share of that cash or deferred contribution: (Choose (1) or (2)) [ ] (1) All or any portion. [ ] (2) _____%. 3.04 CONTRIBUTION ALLOCATION. The Advisory Committee will allocate deferral contributions, matching contributions, qualified nonelective contributions and nonelective contributions in accordance with Section 14.06 and the elections under this Adoption Agreement Section 3.04. Part I. [Options (a) through (d)]. Special Accounting Elections. (Choose whichever elections are applicable to the Employer's Plan) [ x ] (a) Matching Contributions Account. The Advisory Committee will allocate matching contributions to a Participant's: (Choose (1) or (2); (3) is available only in addition to (1)) [ x ] (1) Regular Matching Contributions Account. [ ] (2) Qualified Matching Contributions Account. [ ] (3) Except, matching contributions under Option(s) of Adoption Agreement Section 3.01 are allocable to the Qualified Matching Contributions Account. [ x ] (b) Special Allocation Dates for Salary Reduction Contributions. The Advisory Committee will allocate salary reduction contributions as of the Accounting Date and as of the following additional allocation dates: June 30. [ x ] (c) Special Allocation Dates for Matching Contributions. The Advisory Committee will allocate matching contributions as of the Accounting Date and as of the following additional allocation dates: June 30. [ x ] (d) Designated Qualified Nonelective Contributions - Definition of Participant. For purposes of allocating the designated qualified nonelective contribution, "Participant" means: (Choose (1), (2) or (3)) [ ] (1) All Participants. [ x ] (2) Participants who are Nonhighly Compensated Employees for the Plan Year. [ ] (3) (Specify) __________. Part II. Method of Allocation - Nonelective Contribution. Subject to any restoration allocation required under Section 5.04, the Advisory Committee will allocate and credit each annual nonelective contribution (and Participant forfeitures treated as nonelective contributions) to the Employer Contributions Account of each Participant who satisfies the conditions of Section 3.06, in accordance with the allocation method selected under this Section 3.04. If the Employer elects Option (e)(2), Option (g)(2) or Option (h), for the first 3% of Compensation allocated to all Participants, "Compensation" does not include any exclusions elected under Adoption Agreement Section 1.12 (other than the exclusion of elective contributions), and the Advisory Committee must take into account the Participant's Compensation for the entire Plan Year. (Choose an allocation method under (e), (f), (g) or (h); (i) is mandatory if the Employer elects (f), (g) or (h); (j) is optional in addition to any other election.) [ ] (e) Nonintegrated Allocation Formula. (Choose (1) or (2)) [ ] (1) The Advisory Committee will allocate the annual nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. [ ] (2) The Advisory Committee will allocate the annual nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. For purposes of this Option (2), "Participant" means, in addition to a Participant who satisfies the requirements of Section 3.06 for the Plan Year, any other Participant entitled to a top heavy minimum allocation under Section 3.04(B), but such Participant's allocation will not exceed 3% of his Compensation for the Plan Year. [ x ] (f) Two-Tiered Integrated Allocation Formula - Maximum Disparity. First, the Advisory Committee will allocate the annual Employer nonelective contributions in the same ratio that each Participant's Compensation plus Excess Compensation for the Plan Year bears to the total Compensation plus Excess Compensation of all Participants for the Plan Year. The allocation under this paragraph, as a percentage of each Participant's Compensation plus Excess Compensation, must not exceed the applicable percentage (5.7%, 5.4% or 4.3%) listed under the Maximum Disparity Table following Option (i). The Advisory Committee then will allocate any remaining nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. [ ] (g) Three-Tiered Integrated Allocation Formula. First, the Advisory Committee will allocate the annual Employer nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. The allocation under this paragraph, as a percentage of each Participant's Compensation may not exceed the applicable percentage (5.7%, 5.4% or 4.3%) listed under the Maximum Disparity Table following Option (i). Solely for purposes of the allocation in this first paragraph, "Participant" means, in addition to a Participant who satisfies the requirements of Section 3.06 for the Plan Year: (Choose (1) or (2)) [ ] (1) No other Participant. [ ] (2) Any other Participant entitled to a top heavy minimum allocation under Section 3.04(B), but such Participant's allocation under this Option (g) will not exceed 3% of his Compensation for the Plan Year. As a second tier allocation, the Advisory Committee will allocate the nonelective contributions in the same ratio that each Participant's Excess Compensation for the Plan Year bears to the total Excess Compensation of all Participants for the Plan Year. The allocation under this paragraph, as a percentage of each Participant's Excess Compensation, may not exceed the allocation percentage in the first paragraph. Finally, the Advisory Committee will allocate any remaining nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. [ ] (h) Four-Tiered Integrated Allocation Formula. First, the Advisory Committee will allocate the annual Employer nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year, but not exceeding 3% of each Participant's Compensation. Solely for purposes of this first tier allocation, a "Participant" means, in addition to any Participant who satisfies the requirements of Section 3.06 for the Plan Year, any other Participant entitled to a top heavy minimum allocation under Section 3.04(B) of the Plan. As a second tier allocation, the Advisory Committee will allocate the nonelective contributions in the same ratio that each Participant's Excess Compensation for the Plan Year bears to the total Excess Compensation of all Participants for the Plan Year, but not exceeding 3% of each Participant's Excess Compensation. As a third tier allocation, the Advisory Committee will allocate the annual Employer contributions in the same ratio that each Participant's Compensation plus Excess Compensation for the Plan Year bears to the total Compensation plus Excess Compensation of all Participants for the Plan Year. The allocation under this paragraph, as a percentage of each Participant's Compensation plus Excess Compensation, must not exceed the applicable percentage (2.7%, 2.4% or 1.3%) listed under the Maximum Disparity Table following Option (i). The Advisory Committee then will allocate any remaining nonelective contributions in the same ratio that each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for the Plan Year. [ x ] (i) Excess Compensation. For purposes of Option (f), (g) or (h), "Excess Compensation" means Compensation in excess of the following Integration Level: (Choose (1) or (2)) [ x ] (1) 100% (not exceeding 100%) of the taxable wage base, as determined under Section 230 of the Social Security Act, in effect on the first day of the Plan Year: (Choose any combination of (i) and (ii) or choose (iii)) [ ] (i) Rounded to _____ (but not exceeding the taxable wage base). [ ] (ii) But not greater than $_____. [ x ] (iii) Without any further adjustment or limitation. [ ] (2) $_____ [Note: Not exceeding the taxable wage base for the Plan Year in which this Adoption Agreement first is effective.] Maximum Disparity Table. For purposes of Options (f), (g) and (h), the applicable percentage is:
Integration Level (as Applicable Percentages for Applicable Percentages percentage of taxable Option (f) or Option (g) for Option (h) wage base) 100% 5.7% 2.7% More than 80% but less than 100% 5.4% 2.4% More than 20% (but not less than $10,001) and not more than 80% 4.3% 1.3% 20% (or $10,000, if greater) or less 5.7% 2.7%
[ ] (j) Allocation offset. The Advisory Committee will reduce a Participant's allocation otherwise made under Part II of this Section 3.04 by the Participant's allocation under the following qualified plan(s) maintained by the Employer: _____________________. The Advisory Committee will determine this allocation reduction: (Choose (1) or (2)) [ ] (1) By treating the term "nonelective contribution" as including all amounts paid or accrued by the Employer during the Plan Year to the qualified plan(s) referenced under this Option (j). If a Participant under this Plan also participates in that other plan, the Advisory Committee will treat the amount the Employer contributes for or during a Plan Year on behalf of a particular Participant under such other plan as an amount allocated under this Plan to that Participant's Account for that Plan Year. The Advisory Committee will make the computation of allocation required under the immediately preceding sentence before making any allocation of nonelective contributions under this Section 3.04. [ ] (2) In accordance with the formula provided in an addendum to this Adoption Agreement, numbered 3.04(j). Top Heavy Minimum Allocation - Method of Compliance. If a Participant's allocation under this Section 3.04 is less than the top heavy minimum allocation to which he is entitled under Section 3.04(B): (Choose (k) or (l)) [ x ] (k) The Employer will make any necessary additional contribution to the Participant's Account, as described in Section 3.04(B)(7)(a) of the Plan. [ ] (l) The Employer will satisfy the top heavy minimum allocation under the following plan(s) it maintains: ___________. However, the Employer will make any necessary additional contribution to satisfy the top heavy minimum allocation for an Employee covered only under this Plan and not under the other plan(s) designated in this Option (l). See Section 3.04(B)(7)(b) of the Plan. If the Employer maintains another plan, the Employer may provide in an addendum to this Adoption Agreement, numbered Section 3.04, any modifications to the Plan necessary to satisfy the top heavy requirements under Code Section 416. Related employers. If two or more related employers (as defined in Section 1.30) contribute to this Plan, the Advisory Committee must allocate all Employer nonelective contributions (and forfeitures treated as nonelective contributions) to each Participant in the Plan, in accordance with the elections in this Adoption Agreement Section 3.04: (Choose (m) or (n)) [ X ] (m) Without regard to which contributing related group member employs the Participant. [ ] (n) Only to the Participants directly employed by the contributing Employer. If a Participant receives Compensation from more than one contributing Employer, the Advisory Committee will determine the allocations under this Adoption Agreement Section 3.04 by prorating among the participating Employers the Participant's Compensation and, if applicable, the Participant's Integration Level under Option (i). 3.05 FORFEITURE ALLOCATION. Subject to any restoration allocation required under Sections 5.04 or 9.14, the Advisory Committee will allocate a Participant forfeiture in accordance with Section 3.04: (Choose (a) or (b); (c) and (d) are optional in addition to (a) or (b)) [ x ] (a) As an Employer nonelective contribution for the Plan Year in which the forfeiture occurs, as if the Participant forfeiture were an additional nonelective contribution for that Plan Year. [ ] (b) To reduce the Employer matching contributions and nonelective contributions for the Plan Year: (Choose (1) or (2)) [ ] (1) in which the forfeiture occurs. [ ] (2) immediately following the Plan Year in which the forfeiture occurs. [ ] (c) To the extent attributable to matching contributions: (Choose (1), (2) or (3)) [ ] (1) In the manner elected under Options (a) or (b). [ ] (2) First to reduce Employer matching contributions for the Plan Year: (Choose (i) or (ii)) [ ] (i) in which the forfeiture occurs, [ ] (ii) immediately following the Plan Year in which the forfeiture occurs, then as elected in Options (a) or (b). [ ] (3) As a discretionary matching contribution for the Plan Year in which the forfeiture occurs, in lieu of the manner elected under Options (a) or (b). [ ] (d) First to reduce the Plan's ordinary and necessary administrative expenses for the Plan Year and then will allocate any remaining forfeitures in the manner described in Options (a), (b) or (c), whichever applies. If the Employer elects Option (c), the forfeitures used to reduce Plan expenses: (Choose (1) or (2)) [ ] (1) relate proportionately to forfeitures described in Option (c) and to forfeitures described in Options (a) or (b). [ ] (2) relate first to forfeitures described in Option . Allocation of forfeited excess aggregate contributions. The Advisory Committee will allocate any forfeited excess aggregate contributions (as described in Section 14.09): (Choose (e), (f) or (g)) [ ] (e) To reduce Employer matching contributions for the Plan Year: (Choose (1) or (2)) [ ] (1) in which the forfeiture occurs. [ ] (2) immediately following the Plan Year in which the forfeiture occurs. [ ] (f) As Employer discretionary matching contributions for the Plan Year in which forfeited, except the Advisory Committee will not allocate these forfeitures to the Highly Compensated Employees who incurred the forfeitures. [ x ] (g) In accordance with Options (a) through (d), whichever applies, except the Advisory Committee will not allocate these forfeitures under Option (a) or under Option (c)(3) to the Highly Compensated Employees who incurred the forfeitures. 3.06 ACCRUAL OF BENEFIT. Compensation taken into account. For the Plan Year in which the Employee first becomes a Participant, the Advisory Committee will determine the allocation of any cash or deferred contribution, designated qualified nonelective contribution or nonelective contribution by taking into account: (Choose (a) or (b)) [ ] (a) The Employee's Compensation for the entire Plan Year. [ x ] (b) The Employee's Compensation for the portion of the Plan Year in which the Employee actually is a Participant in the Plan. Accrual Requirements. Subject to the suspension of accrual requirements of Section 3.06(E) of the Plan, to receive an allocation of cash or deferred contributions, matching contributions, designated qualified nonelective contributions, nonelective contributions and Participant forfeitures, if any, for the Plan Year, a Participant must satisfy the conditions described in the following elections: (Choose (c) or at least one of (d) through (f)) [ ] (c) Safe harbor rule. If the Participant is employed by the Employer on the last day of the Plan Year, the Participant must complete at least one Hour of Service for that Plan Year. If the Participant is not employed by the Employer on the last day of the Plan Year, the Participant must complete at least 501 Hours of Service during the Plan Year. [ x ] (d) Hours of Service condition. The Participant must complete the following minimum number of Hours of Service during the Plan Year: (Choose at least one of (1) through (5)) [ x ] (1) 1,000 Hours of Service. [ ] (2) (Specify, but the number of Hours of Service may not exceed 1,000) ____________. [ x ] (3) No Hour of Service requirement if the Participant terminates employment during the Plan Year on account of: (Choose (i), (ii) or (iii)) [ x ] (i) Death. [ x ] (ii) Disability. [ x ] (iii) Attainment of Normal Retirement Age in the current Plan Year or in a prior Plan Year. [ ] (4) _____ Hours of Service (not exceeding 1,000) if the Participant terminates employment with the Employer during the Plan Year, subject to any election in Option (3). [ x ] (5) No Hour of Service requirement for an allocation of the following contributions: Employer match and employee salary deferral. [ x ] (e) Employment condition. The Participant must be employed by the Employer on the last day of the Plan Year, irrespective of whether he satisfies any Hours of Service condition under Option (d), with the following exceptions: (Choose (1) or at least one of (2) through (5)) [ ] (1) No exceptions. [ x ] (2) Termination of employment because of death. [ x ] (3) Termination of employment because of disability. [ x ] (4) Termination of employment following attainment of Normal Retirement Age. [ x ] (5) No employment condition for the following contributions: Employer match and employee salary deferral. [ ] (f) (Specify other conditions, if applicable):_________________. Suspension of Accrual Requirements. The suspension of accrual requirements of Section 3.06(E) of the Plan: (Choose (g), (h) or (i)) [ x ] (g) Applies to the Employer's Plan. [ ] (h) Does not apply to the Employer's Plan. [ ] (i) Applies in modified form to the Employer's Plan, as described in an addendum to this Adoption Agreement, numbered Section 3.06(E). Special accrual requirements for matching contributions. If the Plan allocates matching contributions on two or more allocation dates for a Plan Year, the Advisory Committee, unless otherwise specified in Option (l), will apply any Hours of Service condition by dividing the required Hours of Service on a prorata basis to the allocation periods included in that Plan Year. Furthermore, a Participant who satisfies the conditions described in this Adoption Agreement Section 3.06 will receive an allocation of matching contributions (and forfeitures treated as matching contributions) only if the Participant satisfies the following additional condition(s): (Choose (j) or at least one of (k) or (l)) [ x ] (j) No additional conditions. [ ] (k) The Participant is not a Highly Compensated Employee for the Plan Year. This Option (k) applies to: (Choose (1) or (2)) [ ] (1) All matching contributions. [ ] (2) Matching contributions described in Option(s) _____ of Adoption Agreement Section 3.01. [ ] (l) (Specify) __________________. 3.15 MORE THAN ONE PLAN LIMITATION. If the provisions of Section 3.15 apply, the Excess Amount attributed to this Plan equals: (Choose (a), (b) or (c)) [ ] (a) The product of: (i) the total Excess Amount allocated as of such date (including any amount which the Advisory Committee would have allocated but for the limitations of Code Section 415), times (ii) the ratio of (1) the amount allocated to the Participant as of such date under this Plan divided by (2) the total amount allocated as of such date under all qualified defined contribution plans (determined without regard to the limitations of Code Section 415). [ x ] (b) The total Excess Amount. [ ] (c) None of the Excess Amount. 3.18 DEFINED BENEFIT PLAN LIMITATION. Application of limitation. The limitation under Section 3.18 of the Plan: (Choose (a) or (b)) [ ] (a) Does not apply to the Employer's Plan because the Employer does not maintain and never has maintained a defined benefit plan covering any Participant in this Plan. [ x ] (b) Applies to the Employer's Plan. To the extent necessary to satisfy the limitation under Section 3.18, the Employer will reduce: (Choose (1) or (2)) [ ] (1) The Participant's projected annual benefit under the defined benefit plan under which the Participant participates. [ x ] (2) Its contribution or allocation on behalf of the Participant to the defined contribution plan under which the Participant participates and then, if necessary, the Participant's projected annual benefit under the defined benefit plan under which the Participant participates. [Note: If the Employer selects (a), the remaining options in this Section 3.18 do not apply to the Employer's Plan.] Coordination with top heavy minimum allocation. The Advisory Committee will apply the top heavy minimum allocation provisions of Section 3.04(B) of the Plan with the following modifications: (Choose (c) or at least one of (d) or (e)) [ x ] (c) No modifications. [ ] (d) For Non-Key Employees participating only in this Plan, the top heavy minimum allocation is the minimum allocation described in Section 3.04(B) determined by substituting ____% (not less than 4%) for "3%," except: (Choose (i) or (ii)) [ ] (i) No exceptions. [ ] (ii) Plan Years in which the top heavy ratio exceeds 90%. [ ] (e) For Non-Key Employees also participating in the defined benefit plan, the top heavy minimum is: (Choose (1) or (2)) [ ] (1) 5% of Compensation (as determined under Section 3.04(B) or the Plan) irrespective of the contribution rate of any Key Employee, except: (Choose (i) or (ii)) [ ] (i) No exceptions. [ ] (ii) Substituting "7 1/2%" for "5%" if the top heavy ratio does not exceed 90%. [ ] (2) 0%. [Note: The Employer may not select this Option (2) unless the defined benefit plan satisfies the top heavy minimum benefit requirements of Code Section 416 for these Non-Key Employees.] Actuarial Assumptions for Top Heavy Calculation. To determine the top heavy ratio, the Advisory Committee will use the following interest rate and mortality assumptions to value accrued benefits under a defined benefit plan: N/A. If the elections under this Section 3.18 are not appropriate to satisfy the limitations of Section 3.18, or the top heavy requirements under Code Section 416, the Employer must provide the appropriate provisions in an addendum to this Adoption Agreement. ARTICLE IV PARTICIPANT CONTRIBUTIONS 4.01 PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS. The Plan: (Choose (a) or (b); (c) is available only with (b)) [ x ] (a) Does not permit Participant nondeductible contributions. [ ] (b) Permits Participant nondeductible contributions, pursuant to Section 14.04 of the Plan. [ ] (c) The following portion of the Participant's nondeductible contributions for the Plan Year are mandatory contributions under Option (i)(3) of Adoption Agreement Section 3.01: (Choose (1) or (2)) [ ] (1) The amount which is not less than: ________________. [ ] (2) The amount which is not greater than: _____________. Allocation dates. The Advisory Committee will allocate nondeductible contributions for each Plan Year as of the Accounting Date and the following additional allocation dates: (Choose (d) or (e)) [ ] (d) No other allocation dates. [ ] (e) (Specify) ___________________. As of an allocation date, the Advisory Committee will credit all nondeductible contributions made for the relevant allocation period. Unless otherwise specified in (e), a nondeductible contribution relates to an allocation period only if actually made to the Trust no later than 30 days after that allocation period ends. 4.05 PARTICIPANT CONTRIBUTION - WITHDRAWAL/DISTRIBUTION. Subject to the restrictions of Article VI, the following distribution options apply to a Participant's Mandatory Contributions Account, if any, prior to his Separation from Service: (Choose (a) or at least one of (b) through (d)) [N/A] (a) No distribution options prior to Separation from Service. [ ] (b) The same distribution options applicable to the Deferral Contributions Account prior to the Participant's Separation from Service, as elected in Adoption Agreement Section 6.03. [ ] (c) Until he retires, the Participant has a continuing election to receive all or any portion of his Mandatory Contributions Account if: (Choose (1) or at least one of (2) through (4)) [ ] (1) No conditions. [ ] (2) The mandatory contributions have accumulated for at least _____ Plan Years since the Plan Year for which contributed. [ ] (3) The Participant suspends making nondeductible contributions for a period of ___ months. [ ] (4) (Specify) ____________. [ ] (d) (Specify) _____________. ARTICLE V TERMINATION OF SERVICE - PARTICIPANT VESTING 5.01 NORMAL RETIREMENT. Normal Retirement Age under the Plan is: (Choose (a) or (b)) [ x ] (a) 62 [State age, but may not exceed age 65]. [ ] (b) The later of the date the Participant attains _____ years of age or the _____ anniversary of the first day of the Plan Year in which the Participant commenced participation in the Plan. [The age selected may not exceed age 65 and the anniversary selected may not exceed the 5th.] 5.02 PARTICIPANT DEATH OR DISABILITY. The 100% vesting rule under Section 5.02 of the Plan: (Choose (a) or choose one or both of (b) and (c)) [ ] (a) Does not apply. [ x ] (b) Applies to death. [ x ] (c) Applies to disability. 5.03 VESTING SCHEDULE. Deferral Contributions Account/Qualified Matching Contributions Account/Qualified Nonelective Contributions Account/Mandatory Contributions Account. A Participant has a 100% Nonforfeitable interest at all times in his Deferral Contributions Account, his Qualified Matching Contributions Account, his Qualified Nonelective Contributions Account and in his Mandatory Contributions Account. Regular Matching Contributions Account/Employer Contributions Account. With respect to a Participant's Regular Matching Contributions Account and Employer Contributions Account, the Employer elects the following vesting schedule: (Choose (a) or (b); (c) and (d) are available only as additional options) [ ] (a) Immediate vesting. 100% Nonforfeitable at all times. [Note: The Employer must elect Option (a) if the eligibility conditions under Adoption Agreement Section 2.01(c) require 2 years of service or more than 12 months of employment.] [ x ] (b) Graduated Vesting Schedules. Top Heavy Schedule (Mandatory) Years of Nonforfeitable Service Percentage Less than 1 0% 1 0% 2 20% 3 40% 4 60% 5 80% 6 or more 100% Non Top Heavy Schedule (Optional) Years of Nonforfeitable Service Percentage Less than 1 0% 1 0% 2 0% 3 20% 4 40% 5 60% 6 80% 7 or more 100% [ x ] (c) Special vesting election for Regular Matching Contributions Account. In lieu of the election under Options (a) or (b), the Employer elects the following vesting schedule for a Participant's Regular Matching Contributions Account: (Choose (1) or (2)) [ x ] (1) 100% Nonforfeitable at all times. [ ] (2) In accordance with the vesting schedule described in the addendum to this Adoption Agreement, numbered 5.03(c). [Note: If the Employer elects this Option (c)(2), the addendum must designate the applicable vesting schedule(s) using the same format as used in Option (b).] [Note: Under Options (b) and (c)(2), the Employer must complete a Top Heavy Schedule which satisfies Code Section 416. The Employer, at its option, may complete a Non Top Heavy Schedule. The Non Top Heavy Schedule must satisfy Code Section 411(a)(2). Also see Section 7.05 of the Plan.] [ x ] (d) The Top Heavy Schedule under Option (b) (and, if applicable, under Option (c)(2)) applies: (Choose (1) or (2)) [ ] (1) Only in a Plan Year for which the Plan is top heavy. [ x ] (2) In the Plan Year for which the Plan first is top heavy and then in all subsequent Plan Years. [Note: The Employer may not elect Option (d) unless it has completed a Non Top Heavy Schedule.] Minimum vesting. (Choose (e) or (f)) [ x ] (e) The Plan does not apply a minimum vesting rule. [ ] (f) A Participant's Nonforfeitable Accrued Benefit will never be less than the lesser of $_____ or his entire Accrued Benefit, even if the application of a graduated vesting schedule under Options (b) or (c) would result in a smaller Nonforfeitable Accrued Benefit. Life Insurance Investments. The Participant's Accrued Benefit attributable to insurance contracts purchased on his behalf under Article XI is: (Choose (g) or (h)) [N/A] (g) Subject to the vesting election under Options (a), (b) or (c). [ ] (h) 100% Nonforfeitable at all times, irrespective of the vesting election under Options (b) or (c)(2). 5.04 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/ RESTORATION OF FORFEITED ACCRUED BENEFIT. The deemed cash-out rule described in Section 5.04(C) of the Plan: (Choose (a) or (b)) [ x ] (a) Does not apply. [ ] (b) Will apply to determine the timing of forfeitures for 0% vested Participants. A Participant is not a 0% vested Participant if he has a Deferral Contributions Account. 5.06 YEAR OF SERVICE - VESTING. Vesting computation period. The Plan measures a Year of Service on the basis of the following 12 consecutive month periods: (Choose (a) or (b)) [ x ] (a) Plan Years. [ ] (b) Employment Years. An Employment Year is the 12 consecutive month period measured from the Employee's Employment Commencement Date and each successive 12 consecutive month period measured from each anniversary of that Employment Commencement Date. Hours of Service. The minimum number of Hours of Service an Employee must complete during a vesting computation period to receive credit for a Year of Service is: (Choose (c) or (d)) [ x ] (c) 1,000 Hours of Service. [ ] (d) _____ Hours of Service. [Note: The Hours of Service requirement may not exceed 1,000.] 5.08 INCLUDED YEARS OF SERVICE - VESTING. The Employer specifically excludes the following Years of Service: (Choose (a) or at least one of (b) through (e)) [ x ] (a) None other than as specified in Section 5.08(a) of the Plan. [ ] (b) Any Year of Service before the Participant attained the age of ___. [Note: The age selected may not exceed age 18.] [ ] (c) Any Year of Service during the period the Employer did not maintain this Plan or a predecessor plan. [ ] (d) Any Year of Service before a Break in Service if the number of consecutive Breaks in Service equals or exceeds the greater of 5 or the aggregate number of the Years of Service prior to the Break. This exception applies only if the Participant is 0% vested in his Accrued Benefit derived from Employer contributions at the time he has a Break in Service. Furthermore, the aggregate number of Years of Service before a Break in Service do not include any Years of Service not required to be taken into account under this exception by reason of any prior Break in Service. [ ] (e) Any Year of Service earned prior to the effective date of ERISA if the Plan would have disregarded that Year of Service on account of an Employee's Separation from Service under a Plan provision in effect and adopted before January 1, 1974. ARTICLE VI TIME AND METHOD OF PAYMENTS OF BENEFITS Code Section 411(d)(6) Protected Benefits. The elections under this Article VI may not eliminate Code Section 411(d)(6) protected benefits. To the extent the elections would eliminate a Code Section 411(d)(6) protected benefit, see Section 13.02 of the Plan. Furthermore, if the elections liberalize the optional forms of benefit under the Plan, the more liberal options apply on the later of the adoption date or the Effective Date of this Adoption Agreement. 6.01 TIME OF PAYMENT OF ACCRUED BENEFIT. Distribution date. A distribution date under the Plan means the 60th day following each semi-annual valuation date . [Note: The Employer must specify the appropriate date(s). The specified distribution dates primarily establish annuity starting dates and the notice and consent periods prescribed by the Plan. The Plan allows the Trustee an administratively practicable period of time to make the actual distribution relating to a particular distribution date.] Nonforfeitable Accrued Benefit Not Exceeding $3,500. Subject to the limitations of Section 6.01(A)(1), the distribution date for distribution of a Nonforfeitable Accrued Benefit not exceeding $3,500 is: (Choose (a), (b), (c), (d) or (e)) [ ] (a) ___________ of the _________ Plan Year beginning after the Participant's Separation from Service. [ x ] (b) the first distribution date following the Participant's Separation from Service. [ ] (c) __________ of the Plan Year after the Participant incurs _____ Break(s) in Service (as defined in Article V). [ ] (d) _________ following the Participant's attainment of Normal Retirement Age, but not earlier than __________ days following his Separation from Service. [ ] (e) (Specify) __________. Nonforfeitable Accrued Benefit Exceeds $3,500. See the elections under Section 6.03. Disability. The distribution date, subject to Section 6.01(A)(3), is: (Choose (f), (g) or (h)) [ ] (f) __________ after the Participant terminates employment because of disability. [ x ] (g) The same as if the Participant had terminated employment without disability. [ ] (h) (Specify) ________. Hardship. (Choose (i) or (j)) [ x ] (i) The Plan does not permit a hardship distribution to a Participant who has separated from Service. [ ] (j) The Plan permits a hardship distribution to a Participant who has separated from Service in accordance with the hardship distribution policy stated in: (Choose (1), (2) or (3)) [ ] (1) Section 6.01(A)(4) of the Plan. [ ] (2) Section 14.11 of the Plan. [ ] (3) The addendum to this Adoption Agreement, numbered Section 6.01. Default on a Loan. If a Participant or Beneficiary defaults on a loan made pursuant to a loan policy adopted by the Advisory Committee pursuant to Section 9.04, the Plan: (Choose (k), (l) or (m)) [ x ] (k) Treats the default as a distributable event. The Trustee, at the time of the default, will reduce the Participant's Nonforfeitable Accrued Benefit by the lesser of the amount in default (plus accrued interest) or the Plan's security interest in that Nonforfeitable Accrued Benefit. To the extent the loan is attributable to the Participant's Deferral Contributions Account, Qualified Matching Contributions Account or Qualified Nonelective Contributions Account, the Trustee will not reduce the Participant's Nonforfeitable Accrued Benefit unless the Participant has separated from Service or unless the Participant has attained age 59 1/2. [ ] (l) Does not treat the default as a distributable event. When an otherwise distributable event first occurs pursuant to Section 6.01 or Section 6.03 of the Plan, the Trustee will reduce the Participant's Nonforfeitable Accrued Benefit by the lesser of the amount in default (plus accrued interest) or the Plan's security interest in that Nonforfeitable Accrued Benefit. [ ] (m) (Specify) __________. 6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. The Advisory Committee will apply Section 6.02 of the Plan with the following modifications: (Choose (a) or at least one of (b), (c), (d) and (e)) [ ] (a) No modifications. [ ] (b) Except as required under Section 6.01 of the Plan, a lump sum distribution is not available: ___________. [ x ] (c) An installment distribution: (Choose (1) or at least one of (2) or (3)) [ ] (1) Is not available under the Plan. [ ] (2) May not exceed the lesser of _____ years or the maximum period permitted under Section 6.02. [ x ] (3) (Specify) option is available in which a participant may elect to take a partial distribution on a semi annual basis with a $1,000 minimum per semi-annual distribution. [ x ] (d) The Plan permits the following annuity options: purchase and delivery of a single premium annuity contract. Any Participant who elects a life annuity option is subject to the requirements of Sections 6.04(A), (B), (C) and (D) of the Plan. See Section 6.04(E). [Note: The Employer may specify additional annuity options in an addendum to this Adoption Agreement, numbered 6.02(d).] [ ] (e) If the Plan invests in qualifying Employer securities, as described in Section 10.03(F), a Participant eligible to elect distribution under Section 6.03 may elect to receive that distribution in Employer securities only in accordance with the provisions of the addendum to this Adoption Agreement, numbered 6.02(e). 6.03 BENEFIT PAYMENT ELECTIONS. Participant Elections After Separation from Service. A Participant who is eligible to make distribution elections under Section 6.03 of the Plan may elect to commence distribution of his Nonforfeitable Accrued Benefit: (Choose at least one of (a) through (c)) [ ] (a) As of any distribution date, but not earlier than __________ of the _________ Plan Year beginning after the Participant's Separation from Service. [ x ] (b) As of the following date(s): (Choose at least one of Options (1) through (6)) [ ] (1) Any distribution date after the close of the Plan Year in which the Participant attains Normal Retirement Age. [ x ] (2) Any distribution date following his Separation from Service with the Employer. [ ] (3) Any distribution date in the __________ Plan Year(s) beginning after his Separation from Service. [ ] (4) Any distribution date in the Plan Year after the Participant incurs _____ Break(s) in Service (as defined in Article V). [ ] (5) Any distribution date following attainment of age _____ and completion of at least _____ Years of Service (as defined in Article V). [ ] (6) (Specify) ___________. [ ] (c) (Specify) __________. The distribution events described in the election(s) made under Options (a), (b) or (c) apply equally to all Accounts maintained for the Participant unless otherwise specified in Option (c). Participant Elections Prior to Separation from Service - Regular Matching Contributions Account and Employer Contributions Account. Subject to the restrictions of Article VI, the following distribution options apply to a Participant's Regular Matching Contributions Account and Employer Contributions Account prior to his Separation from Service: (Choose (d) or at least one of (e) through (h)) [ x ] (d) No distribution options prior to Separation from Service. [ ] (e) Attainment of Specified Age. Until he retires, the Participant has a continuing election to receive all or any portion of his Nonforfeitable interest in these Accounts after he attains: (Choose (1) or (2)) [ ] (1) Normal Retirement Age. [ ] (2) _____ years of age and is at least ____% vested in these Accounts. [Note: If the percentage is less than 100%, see the special vesting formula in Section 5.03.] [ ] (f) After a Participant has participated in the Plan for a period of not less than _____ years and he is 100% vested in these Accounts, until he retires, the Participant has a continuing election to receive all or any portion of the Accounts. [Note: The number in the blank space may not be less than 5.] [ ] (g) Hardship. A Participant may elect a hardship distribution prior to his Separation from Service in accordance with the hardship distribution policy: (Choose (1), (2) or (3); (4) is available only as an additional option) [ ] (1) Under Section 6.01(A)(4) of the Plan. [ ] (2) Under Section 14.11 of the Plan. [ ] (3) Provided in the addendum to this Adoption Agreement, numbered Section 6.03. [ ] (4) In no event may a Participant receive a hardship distribution before he is at least _____% vested in these Accounts. [Note: If the percentage in the blank is less than 100%, see the special vesting formula in Section 5.03.] [ ] (h) (Specify) ___________. [Note: The Employer may use an addendum, numbered 6.03, to provide additional language authorized by Options (b)(6), (c), (g)(3) or (h) of this Adoption Agreement Section 6.03.] Participant Elections Prior to Separation from Service - Deferral Contributions Account, Qualified Matching Contributions Account and Qualified Nonelective Contributions Account. Subject to the restrictions of Article VI, the following distribution options apply to a Participant's Deferral Contributions Account, Qualified Matching Contributions Account and Qualified Nonelective Contributions Account prior to his Separation from Service: (Choose (i) or at least one of (j) through (l)) [ x ] (i) No distribution options prior to Separation from Service. [ ] (j) Until he retires, the Participant has a continuing election to receive all or any portion of these Accounts after he attains: (Choose (1) or (2)) [ ] (1) The later of Normal Retirement Age or age 59 1/2. [ ] (2) Age _____ (at least 59 1/2). [ ] (k) Hardship. A Participant, prior to this Separation from Service, may elect a hardship distribution from his Deferral Contributions Account in accordance with the hardship distribution policy under Section 14.11 of the Plan. [ ] (l) (Specify) _____________. [Note: Option (l) may not permit in service distributions prior to age 59 1/2 (other than hardship) and may not modify the hardship policy described in Section 14.11.] Sale of trade or business/subsidiary. If the Employer sells substantially all of the assets (within the meaning of Code Section 409(d)(2)) used in a trade or business or sells a subsidiary (within the meaning of Code Section 409(d)(3)), a Participant who continues employment with the acquiring corporation is eligible for distribution from his Deferral Contributions Account, Qualified Matching Contributions Account and Qualified Nonelective Contributions Account: (Choose (m) or (n)) [ x ] (m) Only as described in this Adoption Agreement Section 6.03 for distributions prior to Separation from Service. [ ] (n) As if he has a Separation from Service. After March 31, 1988, a distribution authorized solely by reason of this Option (n) must constitute a lump sum distribution, determined in a manner consistent with Code Section 401(k)(10) and the applicable Treasury regulations. 6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES. The annuity distribution requirements of Section 6.04: (Choose (a) or (b)) [ x ] (a) Apply only to a Participant described in Section 6.04(E) of the Plan (relating to the profit sharing exception to the joint and survivor requirements). [ ] (b) Apply to all Participants. ARTICLE IX ADVISORY COMMITTEE - DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS 9.10 VALUE OF PARTICIPANT'S ACCRUED BENEFIT. If a distribution (other than a distribution from a segregated Account and other than a corrective distribution described in Sections 14.07, 14.08, 14.09 or 14.10 of the Plan) occurs more than 90 days after the most recent valuation date, the distribution will include interest at: (Choose (a), (b) or (c)) [ ] (a) _____% per annum. [Note: The percentage may equal 0%.] [ ] (b) The 90 day Treasury bill rate in effect at the beginning of the current valuation period. [ x ] (c) (Specify) All distributions will include interest from the last valuation date up through date of actual distribution at current money market rates. 9.11 ALLOCATION AND DISTRIBUTION OF NET INCOME GAIN OR LOSS. Pursuant to Section 14.12, to determine the allocation of net income, gain or loss: (Complete only those items, if any, which are applicable to the Employer's Plan) [ x ] (a) For salary reduction contributions, the Advisory Committee will: (Choose (1), (2), (3), (4) or (5)) [ ] (1) Apply Section 9.11 without modification. [ ] (2) Use the segregated account approach described in Section 14.12. [ ] (3) Use the weighted average method described in Section 14.12, based on a _____ weighting period. [ x ] (4) Treat as part of the relevant Account at the beginning of the valuation period 50% of the salary reduction contributions: (Choose (i) or (ii)) [ x ] (i) made during that valuation period. [ ] (ii) made by the following specified time: __________. [ ] (5) Apply the allocation method described in the addendum to this Adoption Agreement numbered 9.11(a). [ x ] (b) For matching contributions, the Advisory Committee will: (Choose (1), (2), (3) or (4)) [ ] (1) Apply Section 9.11 without modification. [ ] (2) Use the weighted average method described in Section 14.12, based on a __________ weighting period. [ x ] (3) Treat as part of the relevant Account at the beginning of the valuation period 50% of the matching contributions allocated during the valuation period. [ ] (4) Apply the allocation method described in the addendum to this Adoption Agreement numbered 9.11(b). [ ] (c) For Participant nondeductible contributions, the Advisory Committee will: (Choose (1), (2), (3), (4) or (5)) [ ] (1) Apply Section 9.11 without modification. [ ] (2) Use the segregated account approach described in Section 14.12. [ ] (3) Use the weighted average method described in Section 14.12, based on a __________ weighting period. [ ] (4) Treat as part of the relevant Account at the beginning of the valuation period _____% of the Participant nondeductible contributions: (Choose (i) or (ii)) [ ] (i) made during that valuation period. [ ] (ii) made by the following specified time: __________. [ ] (5) Apply the allocation method described in the addendum to this Adoption Agreement numbered 9.11(c). ARTICLE X TRUSTEE AND CUSTODIAN, POWERS AND DUTIES 10.03 INVESTMENT POWERS. Pursuant to Section 10.03[F] of the Plan, the aggregate investments in qualifying Employer securities and in qualifying Employer real property: (Choose (a) or (b)) [N/A] (a) May not exceed 10% of Plan assets. [ ] (b) May not exceed _____% of Plan assets. [Note: The percentage may not exceed 100%.] 10.14 VALUATION OF TRUST. In addition to each Accounting Date, the Trustee must value the Trust Fund on the following valuation date(s): (Choose (a) or (b)) [ ] (a) No other mandatory valuation dates. [ x ] (b) (Specify) June 30. EFFECTIVE DATE ADDENDUM (Restated Plans Only) The Employer must complete this addendum only if the restated Effective Date specified in Adoption Agreement Section 1.18 is different than the restated effective date for at least one of the provisions listed in this addendum. In lieu of the restated Effective Date in Adoption Agreement Section 1.18, the following special effective dates apply: (Choose whichever elections apply) [ ] (a) Compensation definition. The Compensation definition of Section 1.12 (other than the $200,000 limitation) is effective for Plan Years beginning after _________. [Note: May not be effective later than the first day of the first Plan Year beginning after the Employer executes this Adoption Agreement to restate the Plan for the Tax Reform Act of 1986, if applicable.] [ x ] (b) Eligibility conditions. The eligibility conditions specified in Adoption Agreement Section 2.01 are effective for Plan Years beginning after December 31, 1996. [ ] (c) Suspension of Years of Service. The suspension of Years of Service rule elected under Adoption Agreement Section 2.03 is effective for Plan Years beginning after _____. [ ] (d) Contribution/allocation formula. The contribution formula elected under Adoption Agreement Section 3.01 and the method of allocation elected under Adoption Agreement Section 3.04 is effective for Plan Years beginning after _____. [ ] (e) Accrual requirements. The accrual requirements of Section 3.06 are effective for Plan Years beginning after _____. [ ] (f) Employment condition. The employment condition of Section 3.06 is effective for Plan Years beginning after _____. [ ] (g) Elimination of Net Profits. The requirement for the Employer not to have net profits to contribute to this Plan is effective for Plan Years beginning after _____. [Note: The date specified may not be earlier than December 31, 1985.] [ ] (h) Vesting Schedule. The vesting schedule elected under Adoption Agreement Section 5.03 is effective for Plan Years beginning after _____. [ ] (i) Allocation of Earnings. The special allocation provisions elected under Adoption Agreement Section 9.11 are effective for Plan Years beginning after _____. [ ] (j) (Specify) __________. For Plan Years prior to the special Effective Date, the terms of the Plan prior to its restatement under this Adoption Agreement will control for purposes of the designated provisions. A special Effective Date may not result in the delay of a Plan provision beyond the permissible Effective Date under any applicable law requirements. Execution Page The Trustee (and Custodian, if applicable), by executing this Adoption Agreement, accepts its position and agrees to all of the obligations, responsibilities and duties imposed upon the Trustee (or Custodian) under the Master Plan and Trust. The Employer hereby agrees to the provisions of this Plan and Trust, and in witness of its agreement, the Employer by its duly authorized officers, has executed this Adoption Agreement, and the Trustee (and Custodian, if applicable) signified its acceptance, on this 14th day of November, 1996. Name and EIN of Employer: BRENTON BANKS, INC. 42-0658989 Signed: /s/ Steven T. Schuler CFO/Treasurer/Secretary Name(s) of Trustee: Brenton Bank Signed: /s/ Vice Pres/Trust Officer Name of Custodian: ____________________ Signed: _______________________________ [Note: A Trustee is mandatory, but a Custodian is optional. See Section 10.03 of the Plan.] Plan Number. The 3-digit plan number the Employer assigns to this Plan for ERISA reporting purposes (Form 5500 Series) is: 001. Use of Adoption Agreement. Failure to complete properly the elections in this Adoption Agreement may result in disqualification of the Employer's Plan. The 3-digit number assigned to this Adoption Agreement (see page 1) is solely for the Master Plan Sponsor's recordkeeping purposes and does not necessarily correspond to the plan number the Employer designated in the prior paragraph. Master Plan Sponsor. The Master Plan Sponsor identified on the first page of the basic plan document will notify all adopting employers of any amendment of this Master Plan or of any abandonment or discontinuance by the Master Plan Sponsor of its maintenance of this Master Plan. For inquiries regarding the adoption of the Master Plan, the Master Plan Sponsor's intended meaning of any plan provisions or the effect of the opinion letter issued to the Master Plan Sponsor, please contact the Master Plan Sponsor at the following address and telephone number: P.O. BOX 10478 DES MOINES, IA 50306 (515) 237-5160. Reliance on Opinion Letter. The Employer may not rely on the Master Plan Sponsor's opinion letter covering this Adoption Agreement. For reliance on the Plan's qualification, the Employer must obtain a determination letter from the applicable IRS Key District office. PARTICIPATION AGREEMENT For Participation by Related Group Members (Plan Section 1.30) The undersigned Employer, by executing this Participation Agreement, elects to become a Participating Employer in the Plan identified in Section 1.03 of the accompanying Adoption Agreement, as if the Participating Employer were a signatory to that Agreement. The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Master Plan as made by BRENTON BANKS, INC., the Signatory Employer to the Execution Page of the Adoption Agreement. 1. The Effective Date of the undersigned Employer's participation in the designated Plan is: January 1, 1996. 2. The undersigned Employer's adoption of this Plan constitutes: [ ] (a) The adoption of a new plan by the Participating Employer. [ x ] (b) The adoption of an amendment and restatement of a plan currently maintained by the Employer, identified as Brenton Banks, Inc. Employees' Retirement Plan, and having an original effective date of January 1, 1986. Dated this 14th day of November , 1996. Name of Participating Employer: Brenton Bank Signed: /s/ Steven T. Schuler Participating Employer's EIN: 42-0994231 Acceptance by the Signatory Employer to the Execution Page of the Adoption Agreement and by the Trustee. Name of Signatory Employer: BRENTON BANKS, INC. Accepted: 11-14-96 [Date] Signed: /s/ Steven T. Schuler Name(s) of Trustee: Brenton Bank Accepted: 11-14-96 [Date] Signed: /s/ VP/TO [Note: Each Participating Employer must execute a separate Participation Agreement. See the Execution Page of the Adoption Agreement for important Master Plan information.] PARTICIPATION AGREEMENT For Participation by Related Group Members (Plan Section 1.30) The undersigned Employer, by executing this Participation Agreement, elects to become a Participating Employer in the Plan identified in Section 1.03 of the accompanying Adoption Agreement, as if the Participating Employer were a signatory to that Agreement. The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Master Plan as made by BRENTON BANKS, INC., the Signatory Employer to the Execution Page of the Adoption Agreement. 1. The Effective Date of the undersigned Employer's participation in the designated Plan is: January 1, 1996. 2. The undersigned Employer's adoption of this Plan constitutes: [ ] (a) The adoption of a new plan by the Participating Employer. [ x ] (b) The adoption of an amendment and restatement of a plan currently maintained by the Employer, identified as Brenton Banks, Inc. Employees' Retirement Plan, and having an original effective date of January 1, 1986. Dated this 14th day of November , 1996. Name of Participating Employer: Brenton Savings Bank, FSB Signed: /s/ Kevin Z. Geis Participating Employer's EIN: 42-0114100 Acceptance by the Signatory Employer to the Execution Page of the Adoption Agreement and by the Trustee. Name of Signatory Employer: BRENTON BANKS, INC. Accepted: 11-14-96 [Date] Signed: /s/ Steven T. Schuler Name(s) of Trustee: Brenton Bank Accepted: 11-14-96 [Date] Signed: /s/ VP/TO [Note: Each Participating Employer must execute a separate Participation Agreement. See the Execution Page of the Adoption Agreement for important Master Plan information.] PARTICIPATION AGREEMENT For Participation by Related Group Members (Plan Section 1.30) The undersigned Employer, by executing this Participation Agreement, elects to become a Participating Employer in the Plan identified in Section 1.03 of the accompanying Adoption Agreement, as if the Participating Employer were a signatory to that Agreement. The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Master Plan as made by BRENTON BANKS, INC., the Signatory Employer to the Execution Page of the Adoption Agreement. 1. The Effective Date of the undersigned Employer's participation in the designated Plan is: January 1, 1996. 2. The undersigned Employer's adoption of this Plan constitutes: [ ] (a) The adoption of a new plan by the Participating Employer. [ x ] (b) The adoption of an amendment and restatement of a plan currently maintained by the Employer, identified as Brenton Banks, Inc. Employees' Retirement Plan, and having an original effective date of January 1, 1986. Dated this 14th day of November , 1996. Name of Participating Employer: Brenton Insurance Services, Inc. Signed: /s/ Steven T. Schuler Participating Employer's EIN: 42-1012438 Acceptance by the Signatory Employer to the Execution Page of the Adoption Agreement and by the Trustee. Name of Signatory Employer: BRENTON BANKS, INC. Accepted: 11-14-96 [Date] Signed: /s/ Steven T. Schuler Name(s) of Trustee: Brenton Bank Accepted: 11-14-96 [Date] Signed: /s/ VP/TO [Note: Each Participating Employer must execute a separate Participation Agreement. See the Execution Page of the Adoption Agreement for important Master Plan information.] PARTICIPATION AGREEMENT For Participation by Related Group Members (Plan Section 1.30) The undersigned Employer, by executing this Participation Agreement, elects to become a Participating Employer in the Plan identified in Section 1.03 of the accompanying Adoption Agreement, as if the Participating Employer were a signatory to that Agreement. The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Master Plan as made by BRENTON BANKS, INC., the Signatory Employer to the Execution Page of the Adoption Agreement. 1. The Effective Date of the undersigned Employer's participation in the designated Plan is: January 1, 1996. 2. The undersigned Employer's adoption of this Plan constitutes: [ ] (a) The adoption of a new plan by the Participating Employer. [ x ] (b) The adoption of an amendment and restatement of a plan currently maintained by the Employer, identified as Brenton Banks, Inc. Employees' Retirement Plan, and having an original effective date of January 1, 1986. Dated this 14th day of November, 1996. Name of Participating Employer: Brenton Insurance, Inc. Signed: /s/ Participating Employer's EIN: 42-1231828 Acceptance by the Signatory Employer to the Execution Page of the Adoption Agreement and by the Trustee. Name of Signatory Employer: BRENTON BANKS, INC. Accepted: 11-14-96 [Date] Signed: /s/ Steven T. Schuler Name(s) of Trustee: Brenton Bank Accepted: 11-14-96 [Date] Signed: /s/ VP/TO [Note: Each Participating Employer must execute a separate Participation Agreement. See the Execution Page of the Adoption Agreement for important Master Plan information.] PARTICIPATION AGREEMENT For Participation by Related Group Members (Plan Section 1.30) The undersigned Employer, by executing this Participation Agreement, elects to become a Participating Employer in the Plan identified in Section 1.03 of the accompanying Adoption Agreement, as if the Participating Employer were a signatory to that Agreement. The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Master Plan as made by BRENTON BANKS, INC., the Signatory Employer to the Execution Page of the Adoption Agreement. 1. The Effective Date of the undersigned Employer's participation in the designated Plan is: January 1, 1996. 2. The undersigned Employer's adoption of this Plan constitutes: [ ] (a) The adoption of a new plan by the Participating Employer. [ x ] (b) The adoption of an amendment and restatement of a plan currently maintained by the Employer, identified as Brenton Banks, Inc. Employees' Retirement Plan, and having an original effective date of January 1, 1986. Dated this 14th day of November , 1996. Name of Participating Employer: Brenton Investments, Inc. Signed: /s/ Elizabeth Piper/Bach Participating Employer's EIN: 42-1378382 Acceptance by the Signatory Employer to the Execution Page of the Adoption Agreement and by the Trustee. Name of Signatory Employer: BRENTON BANKS, INC. Accepted: 11-14-96 [Date] Signed: /s/ Steven T. Schuler Name(s) of Trustee: Brenton Bank Accepted: 11-14-96 [Date] Signed: /s/ VP/TO [Note: Each Participating Employer must execute a separate Participation Agreement. See the Execution Page of the Adoption Agreement for important Master Plan information.] PARTICIPATION AGREEMENT For Participation by Related Group Members (Plan Section 1.30) The undersigned Employer, by executing this Participation Agreement, elects to become a Participating Employer in the Plan identified in Section 1.03 of the accompanying Adoption Agreement, as if the Participating Employer were a signatory to that Agreement. The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Master Plan as made by BRENTON BANKS, INC., the Signatory Employer to the Execution Page of the Adoption Agreement. 1. The Effective Date of the undersigned Employer's participation in the designated Plan is: January 1, 1996. 2. The undersigned Employer's adoption of this Plan constitutes: [ ] (a) The adoption of a new plan by the Participating Employer. [ x ] (b) The adoption of an amendment and restatement of a plan currently maintained by the Employer, identified as Brenton Banks, Inc. Employees' Retirement Plan, and having an original effective date of January 1, 1986. Dated this 14th day of November , 1996. Name of Participating Employer: Brenton Realty Services, Inc. Signed: /s/ Participating Employer's EIN: 42-1231886 Acceptance by the Signatory Employer to the Execution Page of the Adoption Agreement and by the Trustee. Name of Signatory Employer: BRENTON BANKS, INC. Accepted: 11-14-96 [Date] Signed: /s/ Steven T. Schuler Name(s) of Trustee: Brenton Bank Accepted: 11-14-96 [Date] Signed: /s/ VP/TO [Note: Each Participating Employer must execute a separate Participation Agreement. See the Execution Page of the Adoption Agreement for important Master Plan information.] PARTICIPATION AGREEMENT For Participation by Related Group Members (Plan Section 1.30) The undersigned Employer, by executing this Participation Agreement, elects to become a Participating Employer in the Plan identified in Section 1.03 of the accompanying Adoption Agreement, as if the Participating Employer were a signatory to that Agreement. The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Master Plan as made by BRENTON BANKS, INC., the Signatory Employer to the Execution Page of the Adoption Agreement. 1. The Effective Date of the undersigned Employer's participation in the designated Plan is: January 1, 1996. 2. The undersigned Employer's adoption of this Plan constitutes: [ ] (a) The adoption of a new plan by the Participating Employer. [ x ] (b) The adoption of an amendment and restatement of a plan currently maintained by the Employer, identified as Brenton Banks, Inc. Employees' Retirement Plan, and having an original effective date of January 1, 1986. Dated this 14th day of November , 1996. Name of Participating Employer: Brenton Savings Financial Services, Inc. Signed: /s/ Kevin Z. Geis Participating Employer's EIN: 42-1206701 Acceptance by the Signatory Employer to the Execution Page of the Adoption Agreement and by the Trustee. Name of Signatory Employer: BRENTON BANKS, INC. Accepted: 11-14-96 [Date] Signed: /s/ Steven T. Schuler Name(s) of Trustee: Brenton Bank Accepted: 11-14-96 [Date] Signed: /s/ VP/TO [Note: Each Participating Employer must execute a separate Participation Agreement. See the Execution Page of the Adoption Agreement for important Master Plan information.] PARTICIPATION AGREEMENT For Participation by Related Group Members (Plan Section 1.30) The undersigned Employer, by executing this Participation Agreement, elects to become a Participating Employer in the Plan identified in Section 1.03 of the accompanying Adoption Agreement, as if the Participating Employer were a signatory to that Agreement. The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Master Plan as made by BRENTON BANKS, INC., the Signatory Employer to the Execution Page of the Adoption Agreement. 1. The Effective Date of the undersigned Employer's participation in the designated Plan is: January 1, 1996. 2. The undersigned Employer's adoption of this Plan constitutes: [ ] (a) The adoption of a new plan by the Participating Employer. [ x ] (b) The adoption of an amendment and restatement of a plan currently maintained by the Employer, identified as Brenton Banks, Inc. Employees' Retirement Plan, and having an original effective date of January 1, 1986. Dated this 14th day of November , 1996. Name of Participating Employer: Brenton Mortgages, Inc. Signed: /s/ Steven T. Schuler Participating Employer's EIN: 42-1014357 Acceptance by the Signatory Employer to the Execution Page of the Adoption Agreement and by the Trustee. Name of Signatory Employer: BRENTON BANKS, INC. Accepted: 11-14-96 [Date] Signed: /s/ Steven T. Schuler Name(s) of Trustee: Brenton Bank Accepted: 11-14-96 [Date] Signed: /s/ VP/TO [Note: Each Participating Employer must execute a separate Participation Agreement. See the Execution Page of the Adoption Agreement for important Master Plan information.] PARTICIPATION AGREEMENT PARTICIPATION AGREEMENT For Participation by Related Group Members (Plan Section 1.30) The undersigned Employer, by executing this Participation Agreement, elects to become a Participating Employer in the Plan identified in Section 1.03 of the accompanying Adoption Agreement, as if the Participating Employer were a signatory to that Agreement. The Participating Employer accepts, and agrees to be bound by, all of the elections granted under the provisions of the Master Plan as made by BRENTON BANKS, INC., the Signatory Employer to the Execution Page of the Adoption Agreement. 1. The Effective Date of the undersigned Employer's participation in the designated Plan is: January 1, 1996. 2. The undersigned Employer's adoption of this Plan constitutes: [ ] (a) The adoption of a new plan by the Participating Employer. [ x ] (b) The adoption of an amendment and restatement of a plan currently maintained by the Employer, identified as Brenton Banks, Inc. Employees' Retirement Plan, and having an original effective date of January 1, 1986. Dated this 14th day of November , 1996. Name of Participating Employer: Brenton Brothers Inc. Signed: /s/ C. Robert Brenton Participating Employer's EIN: 42-1142851 Acceptance by the Signatory Employer to the Execution Page of the Adoption Agreement and by the Trustee. Name of Signatory Employer: BRENTON BANKS, INC. Accepted: 11-14-96 [Date] Signed: /s/ Steven T. Schuler Name(s) of Trustee: Brenton Bank Accepted: 11-14-96 [Date] Signed: /s/ VP/TO [Note: Each Participating Employer must execute a separate Participation Agreement. See the Execution Page of the Adoption Agreement for important Master Plan information.] EX-10.14 16 Exhibit 10.14 Indenture Agreement with respect to Capital Notes dated April 12, 1993. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1993. 183 EX-10.15 17 Exhibit 10.15 Indenture Agreement with respect to Capital Notes dated April 14, 1992. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1992. 184 EX-10.16 18 Exhibit 10.16 Indenture Agreement with respect to Capital Notes dated March 27, 1991. 185 CAPITAL NOTES INDENTURES DATED AFTER 1985 AND PRIOR TO 1991, THAT HAVE CAPITAL NOTES OUTSTANDING UNDER THEIR TERMS, ARE SUBSTANTIALLY SIMILAR TO THE FOLLOWING CAPITAL NOTE INDENTURE. I N D E N T U R E A G R E E M E N T W I T H R E S P E C T T O C A P I T A L N O T E S D A T E D M A R C H 2 7, 1 9 9 1 INDENTURE AGREEMENT THIS INDENTURE AGREEMENT is made as of the 27th day of March, 1991, between BRENTON BANKS, INC., a corporation organized and existing under the laws of Iowa with its principal place of business in the City of Des Moines, Iowa, hereinafter called the "Company," and BANKERS TRUST COMPANY, a state banking corporation organized under the laws of the State of Iowa, with its principal place of business in the City of Des Moines, Iowa, hereinafter called the "Trustee." W I T N E S S E T H: WHEREAS, Company is duly authorized by its Articles of Incorporation and By-Laws to borrow money for its corporate purposes; and, WHEREAS, Company was heretofore duly authorized by a unanimous affirmative vote of its directors at a meeting duly called and held for such purpose to borrow the sum of $2,000,000 for use in connection with its ordinary operations and to issue its Capital Notes in the total sum of $2,000,000, with the same to be secured by an appropriate Indenture Agreement with Bankers Trust Company, Des Moines, Iowa, as Trustee for the Capital Note holders. NOW, THEREFORE, in consideration of One Dollar ($1.00) in hand paid to Trustee, and in consideration of the purchase and acceptance of Capital Notes of Company by various purchasers, Company hereby covenants and declares that its Capital Notes in the maximum principal sum of $2,000,000, and hereinafter more fully described, shall be issued by it upon and subject to the following terms, conditions, and covenants, and Trustee by its execution hereof agrees to act as Trustee for all such Capital Note holders under and pursuant to the terms of this Agreement. ARTICLE I Capital Notes 1.01 Company shall issue its Capital Notes, in the maximum total principal sum of $2,000,000 with the same being in the series, maturing on the dates, and bearing interest at the rates enumerated on Exhibit A attached hereto, which said Capital Notes shall constitute those issued under and pursuant to this Indenture. Such Capital Notes shall be issued in denominations of multiples of $1,000. 1.02 The Capital Notes to be issued under and pursuant to the terms hereof shall be in the form attached hereto as Exhibit B. 1.03 All Capital Notes issued pursuant to this Indenture shall be issued directly to the registered owners as to principal and interest, and shall be transferable by the registered owner in person or by duly authorized attorney at the office of the Company upon surrender and cancellation of the original Capital Note, at which time a new registered Capital Note(s) shall be executed and delivered by Company in lieu thereof with the same registered in the name of the transferee or transferees. Each Capital Note issued in consummation of an assignment and transfer of an original issue, or any subsequent Capital Notes issued and outstanding under the terms hereof, shall be appropriately recorded by both Company and by Trustee. 1.04 All Capital Notes issued under and pursuant to this Indenture shall be certified by Trustee and shall not be valid for any purpose until so certified. Whenever a Capital Note is surrendered for transfer or assignment and a new Capital Note issued in lieu thereof, the same shall be certified at that time by Trustee prior to its delivery to the registered owner or owners. 1.05 All Capital Notes issued under the terms hereof shall have equal priority as to principal. Upon the happening of an "event of default," all interest due and unpaid on that date on all Capital Notes issued and outstanding shall have priority over any principal amounts of such Capital Notes, and shall be paid ratably either in money or property among the Capital Note holders to whom the said unpaid interest is due and owing, and no payment of principal shall be made until all said unpaid interest has been paid and discharged in full. Following payment of the interest, the principal sums due and unpaid on all Capital Notes issued and outstanding as of that date shall then be paid. For the purpose of principal payment, whether by virtue of distribution of money or property, priority with respect thereto shall be equal between all such outstanding Capital Notes. 1.06 Any Capital Note issued under the terms hereof which has been lost, destroyed, or stolen shall be replaced by Company with an identical new Capital Note, certified by Trustee, upon proof of loss, destruction, or theft satisfactory to Company and Trustee and the giving of a bond to secure Company and Trustee from loss, if and to the extent required by Company and Trustee. 1.07 Any Capital Note surrendered to Company by the holder thereof on payment or redemption shall be promptly cancelled by Company and after cancellation delivered to Trustee for recordation and return to Company. A Capital Note surrendered upon an assignment or transfer shall also be so cancelled by Company and delivered to Trustee for recordation and return to Company. 1.08 All Capital Notes issued pursuant to the terms hereof shall bear interest, payable semi-annually on June 1 and December 1 of each year prior to maturity, call for redemption or redemption pursuant to Section 1.11 hereof. No payment of principal shall be made until all unpaid interest has been paid and discharged in full. Following payment of the interest, the principal sums due and unpaid on all Capital Notes issued and outstanding as of that date shall be paid. For the purpose of principal payments, whether by virtue of distribution of money or property, priority with respect thereto shall be equal in all respects between all such outstanding Capital Notes. 1.09 Capital Notes issued and outstanding under the terms hereof shall be paid on maturity to the extent that payment is not prohibited by the terms hereof, and after payment of all interest due and payable on any such outstanding Capital Notes at that time. 1.10 Any Capital Note issued pursuant to this Indenture may be redeemed in whole or in part by Company, on any interest payment date after eight (8) years from the date of issuance of such Capital Note, in advance of maturity at any time thirty (30) days after notice by Company of its election to do so by paying all interest due thereon together with the principal amount thereof. 1.11 Upon the death of an individual registered holder or of an individual bearing a certain designated relationship to the registered holder, a Capital Note will be redeemed by the Company at the option of certain designated person(s) exercised as provided herein at face plus all interest accrued on the Capital Note to the date of redemption. An option shall arise upon the death of an individual who is (i) sole registered holder, (ii) a joint tenant registered holder, (iii) a tenant in common registered holder, (iv) a life tenant registered holder, (v) the sole grantor of a revocable trust which is a registered holder, (vi) a participant in an IRA or other retirement plan solely for the benefit of one participant which is a registered holder, or (vii) the ward of a conservatorship or custodianship which is a registered holder. No option to require redemption of a Capital Note shall arise except as specifically set forth above. Upon the death of an individual who is the sole registered holder of a Capital Note, such option shall be exercisable by the deceased holder's personal representative(s). Upon the death of a registered holder who holds a Capital Note in joint tenancy, such option shall be exercisable by the surviving joint tenant(s). Upon the death of a registered holder who holds a Capital Note in tenancy in common, such option shall be exercisable jointly by the personal representative(s) of the deceased holder and by the remaining tenant(s) in common. Upon the death of a registered holder who has a life estate in a Capital Note, such option shall be exercisable by the remainderman(men). Upon the death of an individual who is the sole grantor of a revocable trust which is a registered holder, such option shall be exercisable by the trustee(s) of the trust. Upon the death of the participant in an IRA or other retirement plan solely for the benefit of one participant which is a registered holder, such option shall be exercisable by the beneficiary(ies) of such IRA or retirement plan. Upon the death of a ward of a conservatorship or custodianship which is a registered holder, such option shall be exercisable by the personal representative(s) of such ward's estate. In the event more than one person is entitled to exercise the option, such option shall be exercisable only with the concurrence of all persons entitled to exercise the option. The option shall be exercisable for a period of 9 months following the date of death of the individual whose death gives rise to the option. The option shall be exercised by the person(s) entitled to exercise the option giving written notice to the Company of the exercise of the option at the Company's principal executive offices. Prior to the redemption of the Capital Note, the person(s) entitled to exercise the option shall furnish the Company with such documentation or evidence as the Company shall require to establish such person's(s') entitlement to exercise the redemption option. The Company shall be under no duty to notify the person(s) entitled to exercise the option of the existence of this redemption option or of any facts which come to the attention of the Company which would give any person the right to exercise the option. 1.12 In the event any Capital Note is not presented for surrender and cancellation on maturity or when called for redemption by Company, Company shall deposit a sum equal to the amount due thereon, with Trustee in trust for payment thereof, and no interest shall be due and payable to the holder of such Capital Note from and after its maturity or redemption date. Such payment by Company to Trustee shall be made within thirty (30) days after the due date. Thereafter, Trustee shall pay over said sum to the owner upon delivery and surrender of the pertinent Capital Note(s) for redemption and cancellation. 1.13 Nothing contained in this Indenture or in any of the Capital Notes shall be construed to cause the Capital Notes issued hereunder to become immediately due and payable in the event of any consolidation or merger of the Company with or into any other corporation or corporations (whether or not affiliated with the Company), or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or any sale or conveyance of the property of the Company as an entirety or substantially as an entirety, to any other corporation (whether or not affiliated with the Company) or the purchase of stock and subsequent liquidation of the assets into the purchasing entity (hereinafter "purchase and liquidation") authorized to acquire and operate the same if the following are delivered to the Trustee: (1) an opinion by a certified public accountant appointed by the successor corporation or entity opining that the net worth of the successor corporation or entity following the acquisition, merger, consolidation, sale of assets, or purchase and liquidation determined on a pro forma basis using the successor corporation's or entity's and the Company's most recent year-end financial statements preceding the date of the acquisition, merger, consolidation, sale of assets, or purchase and liquidation is in excess of the net worth of the Company as reflected on the Company's most recent year-end financial statements preceding the date of the acquisition, merger, consolidation, sale of assets, or purchase and liquidation; (2) an Assumption Agreement in which the successor corporation or entity expressly assumes the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company; and (3) an opinion of counsel appointed by the successor corporation or entity that the Assumption Agreement is a valid and binding obligation of such successor corporation or entity enforceable in accordance with its terms and the Capital Notes are valid and binding obligations of the successor corporation or entity. In case of any such consolidation, merger, sale, conveyance, or purchase and liquidation and upon the assumption by the successor corporation, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the Company. 1.14 Any notices which Company is required to give under the terms of this Indenture, or which are deemed necessary or proper by Company, shall be given by first class mail with postage prepaid addressed to each Capital Note holder at the address shown for him on the books and records of Company, and notices so given shall be deemed given upon the date of the mailing thereof. ARTICLE II Covenants of Company 2.01 Company covenants and agrees to pay all principal and interest as the same becomes due and payable upon any Capital Notes issued and outstanding under the terms of this Indenture; provided, however, that principal shall only be paid by it upon surrender of the appropriate Capital Notes for cancellation, or if not surrendered, by payment to Trustee as provided in this Indenture. 2.02 Subject to the provisions of Section 1.13 hereof, Company covenants to continue the operation of its business, all as required and permitted by its Articles of Incorporation and By-Laws, and to at all times maintain sufficient assets and property to continue such general operations so long as any of its Capital Notes remain issued and outstanding under the terms hereof. 2.03 Company covenants to meet all requirements relative to issuance of said Capital Notes, payment of principal and interest thereon from the sources specified, and all other conditions relating thereto as provided in Article I hereof. 2.04 Company further covenants to furnish Trustee true copies of all quarterly and annual reports normally prepared by Company. 2.05 On an annual basis Company covenants to furnish trustee with a certificate indicating whether there has been an "event of default", as defined in Article III hereof, on the Capital Notes. Said statement shall be certified by an officer of the Company that it is true and accurate according to the Company's best knowledge and belief. The Company shall deliver the certificate to the Trustee within ninety (90) days of the Company's fiscal year end. 2.06. The Company further covenants to furnish Trustee a quarterly statement listing the current capital noteholders. Said statement shall be certified by an officer of the Company to be true and accurate according to the Company's best knowledge and belief. ARTICLE III Defaults: Rights, Remedies, and Duties of Trustee and Capital Note Holders 3.01 An "event of default" shall constitute any one of the following: a. Failure of Company to pay interest or principal or any part thereof, within thirty (30) days after due; b. Failure of Company to fully perform any other covenant or obligation made and to be kept or performed by Company by virtue of this Indenture which is not remedied within sixty (60) days after notice of such failure from Trustee or from the holders of twenty-five percent (25%) of the principal amount of all Capital Notes issued and outstanding under the terms hereof at that time. c. Adjudication of Company as a bankrupt or insolvent in any state or federal court, or appointment by any court of a receiver to take over and conduct the business, affairs, and property of Company, or commencement of liquidation of Company, either voluntary or involuntary, pursuant to any bankruptcy, insolvency or receivership. 3.02 Subject to the provisions of Section 4.01(e), upon the happening of an "event of default," Trustee shall declare all principal and interest on all Capital Notes of Company then issued and outstanding under the terms hereof due and payable at once by written notice to Company, and thereafter, Trustee may sue at law or in equity or proceed in any other manner authorized by law to enforce payment of all sums due on any such outstanding Capital Notes and to establish and enforce all rights and priorities of every kind and nature of the holders of all such Capital Notes and of such Trustee. 3.03 Subject to the provisions of Section 4.01(e), upon the occurrence of an "event of default" as defined in this Indenture, Trustee, within thirty (30) days after knowledge thereof, shall give written notice thereof to all registered owners of Capital Notes outstanding under the terms of this Indenture at that time, said notice to be by ordinary first class mail addressed to each owner at the address shown on Trustee's records. Failure to give notices under the terms hereof, however, shall not make Trustee liable for any claim resulting therefrom. 3.04 In any action or proceeding in which rights of Capital Note holders in and to the assets and property of Company are or may be affected, or to enforce payment of interest or principal due under this Indenture or any of the Capital Notes issued pursuant to the same, or to otherwise enforce performance by Company of any obligations made or to be performed by it under the terms hereof or of Capital Notes issued pursuant to this Indenture, Trustee shall act for and on behalf of all Capital Note Holders, and shall file and make proof of debts, claims, petitions, pleadings, and all other instruments, and may take all action and steps deemed necessary or proper to enforce, protect, and preserve all rights and properties of the holders of outstanding Capital Notes. 3.05 Trustee may employ counsel as in its discretion deemed proper in the case of any "event of default" of Company, or any other actions as in this Indenture described or provided for with respect to Trustee either in its own right or for and on behalf of Capital Note holders, and Company shall pay all fees and expenses of such counsel and of Trustee in any such acts, actions, or proceedings taken by Trustee under terms hereof. 3.06 All moneys collected or received by Trustee by virtue of any act, action, or proceeding taken under the terms hereof or received by Trustee for and on behalf of Capital Note holders shall be disbursed as follows: a. In payment of all costs, expenses, charges, and fees of Trustee, including counsel and attorney's fees; b. In payment of all principal and interest due and unpaid on the Capital Notes issued and outstanding at that time. If there are insufficient funds to fully pay all such principal and interest, the funds available shall be applied and paid first ratably to the payment of unpaid interest and then ratably to the payment of principal; c. The remainder, if any, to Company. 3.07 In case of an "event of default" by Company by virtue of which the Trustee may elect to institute an action or proceeding on behalf of the Capital Note holders against Company, if Trustee does not institute an action within thirty (30) days after its elective right to so do has accrued, the holders of Capital Notes totaling twenty-five percent (25%) of the principal amount of all such Capital Notes then issued and outstanding by written demand given to Trustee may require Trustee to institute any action or proceeding which they direct Trustee to initiate, provided however, that Trustee, before bringing any such action, may, as is hereinafter more fully spelled out, require adequate security from such Capital Note holders to protect it against any loss by virtue of expenses, charges, and fees incident to any action so required. In the event that two or more groups of holders of Capital Notes each of which holds Capital Notes totaling twenty-five percent (25%) of the principal amount of all such Capital Notes then issued and outstanding direct the trustee to proceed in a conflicting manner(s), the trustee may interplead the funds into or may seek a declaratory determination of the conflict(s) from the District Court for Polk County, Iowa. 3.08 No holder of any Capital Note issued hereunder shall have the right to institute any suit, action, or proceeding in equity or at law for the execution of any trust or power hereof or for the endorsement or any remedy under this Indenture or any Capital Note issued hereunder unless: a. Such holder shall have previously given the Trustee written notice of some existing "event of default" and of the continuance thereof; b. The holders of twenty-five percent (25%) in principal amount of the Capital Notes at the time outstanding shall have requested the Trustee to exercise such power or right of action after the right to do so has accrued hereunder and have afforded the Trustee a reasonable opportunity to proceed upon such request; c. Such holders shall have offered to Trustee indemnity satisfactory to it against the costs, expenses, and liabilities to be incurred thereby; and d. The Trustee shall have failed or refused to comply with such request within a period of sixty (60) days. Compliance with the foregoing conditions shall at the option of the Trustee be a condition precedent to the exercise of the powers and trusts of this Indenture and to any action or proceeding for the enforcement of any remedy hereunder, and no holder of any Capital Note shall have any right to enforce any right on account of this Indenture or his Capital Note, except in the manner herein provided, and in any event all proceedings hereunder at law or in equity shall be instituted and maintained for the ratable benefit of all holders of outstanding Capital Notes in the manner and with the interest priority provided for in Section 1.05 and Section 3.06, and any other applicable provisions hereof. ARTICLE IV Trustee, Its Rights and Duties, and Successor Trustees 4.01 The Trustee, for itself and its successors, hereby accepts the trust created by this Indenture and assumes the duties imposed, but upon the following terms and conditions: a. Trustee shall be entitled to reasonable compensation for all services from time to time rendered by it under and by virtue of the terms of this Indenture including an acceptance fee, together with all expenses from time to time incurred by it, including fees paid for counsel and for legal services. The parties hereto shall agree upon Trustee's fees for ordinary services from time to time hereunder. In the event the parties do not agree, or in the event of extraordinary services by virtue of events of default or liquidation of Company, or any other matter which may require extraordinary services from Trustee, Trustee's compensation may be fixed by an appropriate court. Company covenants to pay all compensation to which Trustee may be entitled, including expenses and fees from time to time, promptly upon demand. b. Trustee shall not be responsible for the correctness of any recitals in this Indenture of any Capital Notes issued under and pursuant to the same (except certificates and authentications by Trustee). c. Trustee may employ and consult with counsel whenever deemed necessary, and the opinion of such counsel shall be full and complete authorization and protection to and for Trustee in respect of any action taken or suffered by it in good faith and in accordance with the opinion of such counsel. d. Trustee may rely upon the correctness of any certificate or statement, of the President or a Vice President of Company furnished from time to time under the terms hereof and shall not be liable in any way for any act done or any omission to act in reliance on any such certificate or statement. e. Trustee hereunder shall have no responsibility for determining when or whether an "Event of Default" has occurred except for those events of default which would come to its knowledge and attention in the ordinary course of business under this form of Trust Indenture. 4.02 Trustee shall not be liable for any act of commission or omission on its part in connection with the discharge and performance of its duties and obligations under this Indenture and any Capital Notes issued pursuant hereto, except to the extent that any such act or omission shall constitute willful misconduct or negligence, and reliance upon certificates and statements of Company, the President or a Vice President thereof, opinions of counsel (whether counsel for Company or not), and good faith errors in judgment by a responsible officer or officers of Trustee shall not be held to be negligent in any case. 4.03 Trustee shall keep at all times a current list of the names and addresses of registered Capital Note holders, issued and outstanding under the terms of this Indenture. Company shall promptly notify Trustee of all changes in names or addresses of Capital Note holders known to it. 4.04 Trustee may resign whenever it may elect to so do, sixty (60) days after a written notice of its intention to so do has been served on Company and on all Capital Note owners shown by the records of Trustee (notices in all cases to be by ordinary, first class mail with the date of service thereof), and in the event Trustee shall resign, or in the event Trustee shall be dissolved and cease to do business as a bank or trust company, Company shall designate by an appropriate written instrument a successor Trustee which shall be a state or national bank or trust company with its principal office in the state of Iowa. Any successor trustee appointed by Company under the terms hereof shall have all rights, powers, and duties of the original Trustee as herein provided, and whenever in this Indenture the word "Trustee" appears or the Trustee is referred to, it shall mean and includes any and all successor Trustees who may be appointed hereunder. 4.05 Trustee shall not be in any manner precluded from buying, selling, owning, or dealing in Capital Notes issued pursuant to this agreement, either in its own right or as agent for others, as fully and completely as any other individual, firm, or corporation could do. 4.06 Trustee or Company may (and on written request of owners of twenty-five percent (25%) in principal amount of outstanding Capital Notes shall) call a meeting of all Capital Note owners for any appropriate purpose. Such meeting shall be called by giving a written notice of the time and place thereof by ordinary, first class mail to all Capital Note owners whose names and addresses are first shown in the records of Trustee, mailed not less than five (5) days prior to the date fixed for such meeting. The Company shall pay for the costs of calling and holding said meeting. 4.07 In any case in which Trustee is required or may deem it proper or advisable to give a notice to Company, a Capital Note holder or any other person, firm, or agency, such notice shall be given by ordinary, first class mail, addressed to the last known post office address of any such person, firm, or agency, and the time of service thereof shall be the time of mailing thereof. ARTICLE V 5.01 The Company and Trustee may make arrangements varying, amending or changing this Indenture as Company and Trustee shall from time to time deem proper without the approval of the noteholders, provided only that no such amendment shall adversely affect any rights or interests of owners of Capital Notes then issued and outstanding under and pursuant to this Indenture. 5.02 Upon the execution of any Supplemental Indenture pursuant to the provisions of this Article V, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties, and immunities under this Indenture of the Trustee, the Company, and the holders of Capital Notes shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such Supplemental Indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. IN WITNESS WHEREOF, Brenton Banks, Inc. has caused this Indenture to be executed in its name and on its behalf by its President, duly attested by its Secretary, with its corporate seal hereto attached, and Bankers Trust Company, Des Moines, Iowa, to evidence its acceptance of the trusts hereby created, has caused this instrument to be signed in its name and on its behalf by a duly authorized officer, all on or as of this 27th day of March, 1991. BRENTON BANKS, INC. BANKERS TRUST COMPANY By /s/ By /s/ Junius C. Brenton Bryan Hall, Trust Officer President ATTEST: By /s/ Steven T. Schuler, Chief Financial Officer and Vice President/Treasurer/Secretary STATE OF IOWA ) ) ss. COUNTY OF POLK ) On this 28th day of March, 1991, before me, a Notary Public in and for Polk County, Iowa, personally appeared Junius C. Brenton, President, and Steven T. Schuler, Chief Financial Officer and Vice President/Treasurer/Secretary, of Brenton Banks, Inc., the corporation which executed the above and foregoing instrument, who being to me known as the identical persons who signed the foregoing instrument, and by me duly sworn, each for himself, did say that they are respectively the President and the Chief Financial Officer/Vice President/ Secretary/Treasurer of said corporation, and that said instrument was by them signed and sealed on behalf of the said corporation by authority of its Board of Directors, and each of them acknowledged the execution of said instrument to be the voluntary act and deed of said corporation, by it and each of them voluntarily executed. IN WITNESS WHEREOF, I have hereunto signed my name and affixed my Notarial Seal the day and year last above written. /s/ Judith L. Neckulle Notary Public in and for Polk County STATE OF IOWA ) ) ss. COUNTY OF POLK ) On this 27 day of March, 1991, before me, a Notary Public in and for Polk County, Iowa, personally appeared Bryan Hall, of Bankers Trust Company, the corporation which executed the above and foregoing instrument, who being to me known as the identical person who signed the foregoing instrument, and by me duly sworn, did say that he is the Trust Officer of said corporation, and that said instrument was by him signed and sealed on behalf of the said corporation by authority of its Board of Directors, and he acknowledged the execution of said instrument to be the voluntary act and deed of said corporation, by it and by him voluntarily executed. IN WITNESS WHEREOF, I have hereunto signed my name and affixed my Notarial Seal the day and year last above written. /s/ John D. Hunter Notary Public in and for Polk County EXHIBIT A 7.00% Capital Notes Series M-19 through M-30 Due 1995 through 2006 7.25% Capital Notes Series N-19 through N-30 Due 1995 through 2006 7.50% Capital Notes Series R-19 through R-30 Due 1995 through 2006 7.75% Capital Notes Series T-19 through T-30 Due 1995 through 2006 8.00% Capital Notes Series U-19 through U-30 Due 1995 through 2006 8.25% Capital Notes Series V-19 through V-30 Due 1995 through 2006 8.50% Capital Notes Series W-19 through W-30 Due 1995 through 2006 8.75% Capital Notes Series X-19 through X-30 Due 1995 through 2006 9.00% Capital Notes Series Y-19 through Y-30 Due 1995 through 2006 9.25% Capital Notes Series B-19 through B-30 Due 1995 through 2006 9.50% Capital Notes Series A-19 through A-30 Due 1995 through 2006 9.75% Capital Notes Series C-19 through C-30 Due 1995 through 2006 10.00% Capital Notes Series D-19 through D-30 Due 1995 through 2006 10.25% Capital Notes Series E-19 through E-30 Due 1995 through 2006 10.50% Capital Notes Series F-19 through F-30 Due 1995 through 2006 10.75% Capital Notes Series H-19 through H-30 Due 1995 through 2006 11.00% Capital Notes Series I-19 through I-30 Due 1995 through 2006 11.25% Capital Notes Series L-19 through L-30 Due 1995 through 2006 11.50% Capital Notes Series O-19 through O-30 Due 1995 through 2006 11.75% Capital Notes Series S-19 through S-30 Due 1995 through 2006 12.00% Capital Notes Series Z-19 through Z-30 Due 1995 through 2006 12.25% Capital Notes Series P-19 through P-30 Due 1995 through 2006 12.50% Capital Notes Series SS-19 through SS-30 Due 1995 through 2006 12.75% Capital Notes Series AA-19 through AA-30 Due 1995 through 2006 13.00% Capital Notes Series BB-19 through BB-30 Due 1995 through 2006 13.25% Capital Notes Series CC-19 through CC-30 Due 1995 through 2006 13.50% Capital Notes Series DD-19 through DD-30 Due 1995 through 2006 13.75% Capital Notes Series EE-19 through EE-30 Due 1995 through 2006 14.00% Capital Notes Series FF-19 through FF-30 Due 1995 through 2006 EXHIBIT "B" KNo. _______________ BRENTON BANKS, INC. DES MOINES, IOWA $__________________ REGISTERED CAPITAL NOTE (SERIES _______________________ CALLABLE) Brenton Banks, Inc., a corporation organized and existing under the laws of the State of Iowa, hereinafter referred to as the Corporation, for value received hereby promises to pay to the registered holder hereof, upon presentation of this Capital Note, the sum of $___________________ on the 1st day of June,______________, at the main office of the Corporation in the City of Des Moines, Iowa. The Corporation further agrees to pay interest on the principal amount from the __________ day of ____________________, until paid, at the rate of _______% per annum, payable semi-annually on the first day of June and December of each year. The Corporation shall, upon request of the registered holder hereof, mail a check representing the interest hereon, or the principal when due, to the registered holder at his address appearing on the books of registration. The Capital Note is subject to being called on any interest payment date occurring more than eight (8) years after the date of issuance hereof, at the option of the Corporation on not less than thirty (30) days' prior written notice given by the Corporation by ordinary mail to the holder of the Capital Note at such holder's address appearing on the books of registration, at 100% of the principal amount of this Capital Note, together with interest accrued and unpaid on this Capital Note, to the date fixed for such call. Upon the death of an individual registered holder or of an individual bearing a certain designated relationship to the registered holder, a Capital Note will be redeemed by the Company at the option of certain designated person(s) exercised as provided herein at face plus all interest accrued on the Capital Note to the date of redemption. An option shall arise upon the death of an individual who is (i) sole registered holder, (ii) a joint tenant registered holder, (iii) a tenant in common registered holder, (iv) a life tenant registered holder, (v) the sole grantor of a revocable trust which is a registered holder, (vi) a participant in an IRA or other retirement plan solely for the benefit of one participant which is a registered holder, or (vii) the ward of a conservatorship or custodianship which is a registered holder. No option to require redemption of a Capital Note shall arise except as specifically set forth above. Upon the death of an individual who is the sole registered holder of a Capital Note, such option shall be exercisable by the deceased holder's personal representative(s). Upon the death of a registered holder who holds a Capital Note in joint tenancy, such option shall be exercisable by the surviving joint tenant(s). Upon the death of a registered holder who holds a Capital Note in tenancy in common, such option shall be exercisable jointly by the personal representative(s) of the deceased holder and by the remaining tenant(s) in common. Upon the death of a registered holder who has a life estate in a Capital Note, such option shall be exercisable by the remainderman(men). Upon the death of an individual who is the sole grantor of a revocable trust which is a registered holder, such option shall be exercisable by the trustee(s) of the trust. Upon the death of the participant in an IRA or other retirement plan solely for the benefit of one participant which is a registered holder, such option shall be exercisable by the beneficiary(ies) of such IRA or retirement plan. Upon the death of a ward of a conservatorship or custodianship which is a registered holder, such option shall be exercisable by the personal representative(s) of such ward's estate. In the event more than one person is entitled to exercise the option, such option shall be exercisable only with the concurrence of all persons entitled to exercise the option. The option shall be exercisable for a period of 9 months following the date of death of the individual whose death gives rise to the option. The option shall be exercised by the person(s) entitled to exercise the option giving written notice to the Company of the exercise of the option at the Company's principal executive offices. Prior to the redemption of the Capital Note, the person(s) entitled to exercise the option shall furnish the Company with such documentation or evidence as the Company shall require to establish such person's(s') entitlement to exercise the redemption option. The Company shall be under no duty to notify the person(s) entitled to exercise the option of the existence of this redemption option or of any facts which come to the attention of the Company which would give any person the right to exercise the option. This Capital Note is one of an authorized issue of fully registered Capital Notes of Brenton Banks, Inc., issued in multiples of $1,000 and limited to the aggregate principal amount of $2,000,000 at any one time outstanding, all issued pursuant to an Indenture dated April 10, 1990, executed and delivered by the Corporation to the Trustee, to which Indenture reference is hereby made for a description of rights, duties and obligations thereunder of the Corporation, the Trustee and the Owners of the Capital Notes. In the event of default in the payment of principal of, or interest on, this Capital Note, the total principal amount of this Capital Note, and all interest hereof, shall become due and payable and the Corporation shall immediately pay the same. Books for the registry hereof are maintained at the office of the Corporation or at the agency of the Corporation established for that purpose in the city of Des Moines, Iowa. This Capital Note is transferable by the registered holder hereof in person, or by his duly authorized attorney, at the office or agency of the Corporation for such purpose in the city of Des Moines, Iowa, upon surrender for cancellation of this Capital Note at said office or agency. Thereupon, a new Capital Note for a like principal amount, or new Capital Notes in such authorized denominations and registered in such name or names, as shall have been requested, shall be issued and delivered. No transfer hereof shall be valid unless made on the Corporation's books, at the office of the Corporation or the agency established for that purpose, in accordance with the provisions of the foregoing paragraph. The Corporation and its agents may deem and treat the person in whose name this Capital Note is registered as the absolute owner of the Capital Note for the purpose of receiving payment hereof and interest due hereon, but the Corporation may, at any time, require the presentation hereof as a condition precedent to such payment. No recourse shall be had for the payment of the principal of, or interest upon, this Capital Note, against any shareholder, officer, or director of the Corporation, by reason of any matter prior to the delivery of this Note, or otherwise, all such liability, by the acceptance hereof, and as a part of the consideration of this issue hereof, being expressly waived. In the event any Capital Note is not presented for payment when due or when called by the Corporation, the Corporation shall deposit a sum equal to the amount due thereon with Trustee in trust for payment thereof and neither the Corporation nor Trustee shall thereafter be liable for any interest thereon. This Capital Note and any subsequent Capital Note issued on transfer and surrender hereunder shall not be valid for any purpose until duly certified by the Trustee under the Indenture supporting the name. This Capital Note is not a deposit and is not insured by the Federal Deposit Insurance Corporation. IN WITNESS WHEREOF, the Corporation has caused this Capital Note to be executed by its President or other authorized officer, and its corporate seal affixed hereto, at Des Moines, Iowa, on the day and year appearing below. Corporate Seal: Date: ________________________________ BRENTON BANKS, INC. By: __________________________________ (Chairman, Vice Chairman or President) ATTEST: ______________________________________ (Secretary, Assistant Secretary Treasurer) REGISTRATION (No writing on this registered Capital Note except by an officer or agent of the Corporation) Date of In Whose Registry Registration Name Registered Address Officer _____________ ________________ ___________ __________ _____________ ________________ ___________ __________ _____________ ________________ ___________ __________ _____________ ________________ ___________ __________ TRUSTEE'S CERTIFICATE The foregoing Capital Note is hereby certified by the undersigned Bank as Trustee as one of the series of Capital Notes of Brenton Banks, Inc., described in the Indenture referred to therein, made between the Corporation and this Bank as Trustee. Dated as of this _______ day of ____________________, ______. _______________________________ (Trustee) By_____________________________ Its____________________________ (Title) ASSIGNMENT For value received I hereby assign to __________________________________ the within registered Capital Note and hereby irrevocably appoint _____________ ____________________________________ attorney to transfer the registered Capital Note on the books of the within named Corporation with full power of substitution in the premises. Dated:_________________________ Signatures guaranteed by the __________________________ Signature (in whose name _______________________________ registered) (Bank) __________________________ _______________________________ Signature (in whose name Signature registered) _______________________________ Date Office & Title The transfer of any notes represented by this certificate to any person who is not then a bona fide resident of the State of Iowa purchasing such notes for the purpose of investment and not for resale is restricted pursuant to the terms of a subscription form executed by the original holder of such notes. EX-10.17 19 Exhibit 10.17 I N D E N T U R E A G R E E M E N T W I T H R E S P E C T T O C A P I T A L N O T E S D A T E D A U G U S T 5, 1 9 9 1 INDENTURE AGREEMENT THIS INDENTURE AGREEMENT is made as of the 5th day of August, 1991, between BRENTON BANKS, INC., a corporation organized and existing under the laws of Iowa with its principal place of business in the City of Des Moines, Iowa, hereinafter called the "Company," and BANKERS TRUST COMPANY, a state banking corporation organized under the laws of the State of Iowa, with its principal place of business in the City of Des Moines, Iowa, hereinafter called the "Trustee." WHEREAS, Company is duly authorized by its Articles of Incorporation and By-Laws to borrow money for its corporate purposes; and, WHEREAS, Company was heretofore duly authorized by a unanimous affirmative vote of its directors at a meeting duly called and held for such purpose to amend its "Capital Note Registration Statement" in the amount of $2,000,000, to a Capital Note Registration Statement in the amount of $5,000,000; WHEREAS, Company was heretofore duly authorized by unanimous affirmative vote of its directors at a meeting duly called and held for such purpose to borrow the additional sum of $3,000,000 for use in connection with its ordinary operations and to issue its Capital Notes in the total sum of $5,000,000, with all Capital Notes issued after the Amendment to the Registration Statement to be secured by this Indenture Agreement with Bankers Trust Company, Des Moines, Iowa, as Trustee for the Capital Note holders; NOW, THEREFORE, in consideration of One Dollar ($1.00) in hand paid to Trustee, and in consideration of the purchase and acceptance of Capital Notes of Company by various purchasers, Company hereby covenants and declares that its Capital Notes issued after the Amendment to its Capital Note Registration Statement in the maximum principal sum of $3,000,000, and hereinafter more duly described shall be issued by it upon and subject to the following terms, conditions, and covenants, and Trustee by its execution hereof agrees to act as Trustee for all such Capital Note holders under and pursuant to the terms of this Agreement. ARTICLE I Capital Notes 1.01 Company shall issue its Capital Notes, in the maximum total principal sum of $3,000,000 with the same being in the series, maturing on the dates, and bearing interest at the rates enumerated on Exhibit A attached hereto, which said Capital Notes shall constitute those issued under and pursuant to this Indenture. Such Capital Notes shall be issued in denominations of multiples of $1,000. 1.02 The Capital Notes to be issued under and pursuant to the terms hereof shall be in the form attached hereto as Exhibit B. 1.03 All Capital Notes issued pursuant to this Indenture shall be issued directly to the registered owners as to principal and interest, and shall be transferable by the registered owner in person or by duly authorized attorney at the office of the Company upon surrender and cancellation of the original Capital Note, at which time a new registered Capital Note(s) shall be executed and delivered by Company in lieu thereof with the same registered in the name of the transferee or transferees. Each Capital Note issued in consummation of an assignment and transfer of an original issue, or any subsequent Capital Notes issued and outstanding under the terms hereof, shall be appropriately recorded by both Company and by Trustee. 1.04 All Capital Notes issued under and pursuant to this Indenture shall be certified by Trustee and shall not be valid for any purpose until so certified. Whenever a Capital Note is surrendered for transfer or assignment and a new Capital Note issued in lieu thereof, the same shall be certified at that time by Trustee prior to its delivery to the registered owner or owners. 1.05 All Capital Notes issued under the terms hereof shall have equal priority as to principal. Upon the happening of an "event of default," all interest due and unpaid on that date on all Capital Notes issued and outstanding shall have priority over any principal amounts of such Capital Notes, and shall be paid ratably either in money or property among the Capital Note holders to whom the said unpaid interest is due and owing, and no payment of principal shall be made until all said unpaid interest has been paid and discharged in full. Following payment of the interest, the principal sums due and unpaid on all Capital Notes issued and outstanding as of that date shall then be paid. For the purpose of principal payment, whether by virtue of distribution of money or property, priority with respect thereto shall be equal between all such outstanding Capital Notes. 1.06 Any Capital Note issued under the terms hereof which has been lost, destroyed, or stolen shall be replaced by Company with an identical new Capital Note, certified by Trustee, upon proof of loss, destruction, or theft satisfactory to Company and Trustee and the giving of a bond to secure Company and Trustee from loss, if and to the extent required by Company and Trustee. 1.07 Any Capital Note surrendered to Company by the holder thereof on payment or redemption shall be promptly canceled by Company and after cancellation delivered to Trustee for recordation and return to Company. A Capital Note surrendered upon an assignment or transfer shall also be so canceled by Company and delivered to Trustee for recordation and return to Company. 1.08 All Capital Notes issued pursuant to the terms hereof shall bear interest, payable semi-annually on June 1 and December 1 of each year prior to maturity, call for redemption or redemption pursuant to Section 1.11 hereof. No payment of principal shall be made until all unpaid interest has been paid and discharged in full. Following payment of the interest, the principal sums due and unpaid on all Capital Notes issued and outstanding as of that date shall be paid. For the purpose of principal payments, whether by virtue of distribution of money or property, priority with respect thereto shall be equal in all respects between all such outstanding Capital Notes. 1.09 Capital Notes issued and outstanding under the terms hereof shall be paid on maturity to the extent that payment is not prohibited by the terms hereof, and after payment of all interest due and payable on any such outstanding Capital Notes at that time. 1.10 Any Capital Note issued pursuant to this Indenture may be redeemed in whole or in part by Company, on any interest payment date after eight (8) years from the date of issuance of such Capital Note, in advance of maturity at any time thirty (30) days after notice by Company of its election to do so by paying all interest due thereon together with the principal amount thereof. 1.11 Upon the death of an individual registered holder or of an individual bearing a certain designated relationship to the registered holder, a Capital Note will be redeemed by the Company at the option of certain designated person(s) exercised as provided herein at face plus all interest accrued on the Capital Note to the date of redemption. An option shall arise upon the death of an individual who is (i) sole registered holder, (ii) a joint tenant registered holder, (iii) a tenant in common registered holder, (iv) a life tenant registered holder, (v) the sole grantor of a revocable trust which is a registered holder, (vi) a participant in an IRA or other retirement plan solely for the benefit of one participant which is a registered holder, or (vii) the ward of a conservatorship or custodianship which is a registered holder. No option to require redemption of a Capital Note shall arise except as specifically set forth above. Upon the death of an individual who is the sole registered holder of a Capital Note, such option shall be exercisable by the deceased holder's personal representative(s). Upon the death of a registered holder who holds a Capital Note in joint tenancy, such option shall be exercisable by the surviving joint tenant(s). Upon the death of a registered holder who holds a Capital Note in tenancy in common, such option shall be exercisable jointly by the personal representative(s) of the deceased holder and by the remaining tenant(s) in common. Upon the death of a registered holder who has a life estate in a Capital Note, such option shall be exercisable by the remainderman(men). Upon the death of an individual who is the sole grantor of a revocable trust which is a registered holder, such option shall be exercisable by the trustee(s) of the trust. Upon the death of the participant in an IRA or other retirement plan solely for the benefit of one participant which is a registered holder, such option shall be exer- cisable by the beneficiary(ies) of such IRA or retirement plan. Upon the death of a ward of a conservatorship or custodianship which is a registered holder, such option shall be exercisable by the personal representative(s) of such ward's estate. In the event more than one person is entitled to exercise the option, such option shall be exercisable only with the concurrence of all persons entitled to exercise the option. The option shall be exercisable for a period of 9 months following the date of death of the individual whose death gives rise to the option. The option shall be exercised by the person(s) entitled to exercise the option giving written notice to the Company of the exercise of the option at the Company's principal executive offices. Prior to the redemption of the Capital Note, the person(s) entitled to exercise the option shall furnish the Company with such documentation or evidence as the Company shall require to establish such person's(s') entitlement to exercise the redemption option. The Company shall be under no duty to notify the person(s) entitled to exercise the option of the existence of this redemption option or of any facts which come to the attention of the Company which would give any person the right to exercise the option. 1.12 In the event any Capital Note is not presented for surrender and cancellation on maturity or when called for redemption by Company, Company shall deposit a sum equal to the amount due thereon, with Trustee in trust for payment thereof, and no interest shall be due and payable to the holder of such Capital Note from and after its maturity or redemption date. Such payment by Company to Trustee shall be made within thirty (30) days after the due date. Thereafter, Trustee shall pay over said sum to the owner upon delivery and surrender of the pertinent Capital Note(s) for redemption and cancellation. 1.13 Nothing contained in this Indenture or in any of the Capital Notes shall be construed to cause the Capital Notes issued hereunder to become immediately due and payable in the event of any consolidation or merger of the Company with or into any other corporation or corporations (whether or not affiliated with the Company), or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or any sale or conveyance of the property of the Company as an entirety or substantially as an entirety, to any other corporation (whether or not affiliated with the Company) or the purchase of stock and subsequent liquidation of the assets into the purchasing entity (hereinafter "purchase and liquidation") authorized to acquire and operate the same if the following are delivered to the Trustee: (1) an opinion by a certified public accountant appointed by the successor corporation or entity opining that the net worth of the successor corporation or entity following the acquisition, merger, consolidation, sale of assets, or purchase and liquidation determined on a pro forma basis using the successor corporation's or entity's and the Company's most recent year-end financial statements preceding the date of the acquisition, merger, consoli- dation, sale of assets, or purchase and liquidation is in excess of the net worth of the Company as reflected on the Company's most recent year-end financial statements preceding the date of the acquisition, merger, consolidation, sale of assets, or purchase and liquidation; (2) an Assumption Agreement in which the successor corporation or entity expressly assumes the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company; and (3) an opinion of counsel appointed by the successor corporation or entity that the Assumption Agreement is a valid and binding obligation of such successor corporation or entity enforceable in accordance with its terms and the Capital Notes are valid and binding obligations of the successor corporation or entity. In case of any such consolidation, merger, sale, conveyance, or purchase and liquidation and upon the assumption by the successor corporation, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the Company. 1.14 Any notices which Company is required to give under the terms of this Indenture, or which are deemed necessary or proper by Company, shall be given by first class mail with postage prepaid addressed to each Capital Note holder at the address shown for him on the books and records of Company, and notices so given shall be deemed given upon the date of the mailing thereof. ARTICLE II Covenants of Company 2.01 Company covenants and agrees to pay all principal and interest as the same becomes due and payable upon any Capital Notes issued and outstanding under the terms of this Indenture; provided, however, that principal shall only be paid by it upon surrender of the appropriate Capital Notes for cancellation, or if not surrendered, by payment to Trustee as provided in this Indenture. 2.02 Subject to the provisions of Section 1.13 hereof, Company covenants to continue the operation of its business, all as required and permitted by its Articles of Incorporation and By-Laws, and to at all times maintain sufficient assets and property to continue such general operations so long as any of its Capital Notes remain issued and outstanding under the terms hereof. 2.03 Company covenants to meet all requirements relative to issuance of said Capital Notes, payment of principal and interest thereon from the sources specified, and all other conditions relating thereto as provided in Article I hereof. 2.04 Company further covenants to furnish Trustee true copies of all quarterly and annual reports normally prepared by Company. 2.05 On an annual basis Company covenants to furnish trustee with a certificate indicating whether there has been an "event of default", as defined in Article III hereof, on the Capital Notes. Said statement shall be certified by an officer of the Company that it is true and accurate according to the Company's best knowledge and belief. The Company shall deliver the certificate to the Trustee within ninety (90) days of the Company's fiscal year end. 2.06. The Company further covenants to furnish Trustee a quarterly statement listing the current capital note holders. Said statement shall be certified by an officer of the Company to be true and accurate according to the Company's best knowledge and belief. ARTICLE III Defaults: Rights, Remedies, and Duties of Trustee and Capital Note Holders 3.01 An "event of default" shall constitute any one of the following: a. Failure of Company to pay interest or principal or any part thereof, within thirty (30) days after due; b. Failure of Company to fully perform any other covenant or obligation made and to be kept or performed by Company by virtue of this Indenture which is not remedied within sixty (60) days after notice of such failure from Trustee or from the holders of twenty-five percent (25%) of the principal amount of all Capital Notes issued and outstanding under the terms hereof at that time. c. Adjudication of Company as a bankrupt or insolvent in any state or federal court, or appointment by any court of a receiver to take over and conduct the business, affairs, and property of Company, or commencement of liquidation of Company, either voluntary or involuntary, pursuant to any bankruptcy, insolvency or receivership. 3.02 Subject to the provisions of Section 4.01(e), upon the happening of an "event of default," Trustee shall declare all principal and interest on all Capital Notes of Company then issued and outstanding under the terms hereof due and payable at once by written notice to Company, and thereafter, Trustee may sue at law or in equity or proceed in any other manner authorized by law to enforce payment of all sums due on any such outstanding Capital Notes and to establish and enforce all rights and priorities of every kind and nature of the holders of all such Capital Notes and of such Trustee. 3.03 Subject to the provisions of Section 4.01(e), upon the occurrence of an "event of default" as defined in this Indenture, Trustee, within thirty (30) days after knowledge thereof, shall give written notice thereof to all registered owners of Capital Notes outstanding under the terms of this Indenture at that time, said notice to be by ordinary first class mail addressed to each owner at the address shown on Trustee's records. Failure to give notices under the terms hereof, however, shall not make Trustee liable for any claim resulting therefrom. 3.04 In any action or proceeding in which rights of Capital Note holders in and to the assets and property of Company are or may be affected, or to enforce payment of interest or principal due under this Indenture or any of the Capital Notes issued pursuant to the same, or to otherwise enforce performance by Company of any obligations made or to be performed by it under the terms hereof or of Capital Notes issued pursuant to this Indenture, Trustee shall act for and on behalf of all Capital Note Holders, and shall file and make proof of debts, claims, petitions, pleadings, and all other instruments, and may take all action and steps deemed necessary or proper to enforce, protect, and preserve all rights and properties of the holders of outstanding Capital Notes. 3.05 Trustee may employ counsel as in its discretion deemed proper in the case of any "event of default" of Company, or any other actions as in this Indenture described or provided for with respect to Trustee either in its own right or for and on behalf of Capital Note holders, and Company shall pay all fees and expenses of such counsel and of Trustee in any such acts, actions, or proceedings taken by Trustee under terms hereof. 3.06 All moneys collected or received by Trustee by virtue of any act, action, or proceeding taken under the terms hereof or received by Trustee for and on behalf of Capital Note holders shall be disbursed as follows: a. In payment of all costs, expenses, charges, and fees of Trustee, including counsel and attorney's fees; b. In payment of all principal and interest due and unpaid on the Capital Notes issued and outstanding at that time. If there are insufficient funds to fully pay all such principal and interest, the funds available shall be applied and paid first ratably to the payment of unpaid interest and then ratably to the payment of principal; c. The remainder, if any, to Company. 3.07 In case of an "event of default" by Company by virtue of which the Trustee may elect to institute an action or proceeding on behalf of the Capital Note holders against Company, if Trustee does not institute an action within thirty (30) days after its elective right to so do has accrued, the holders of Capital Notes totaling twenty-five percent (25%) of the principal amount of all such Capital Notes then issued and outstanding by written demand given to Trustee may require Trustee to institute any action or proceeding which they direct Trustee to initiate, provided however, that Trustee, before bringing any such action, may, as is hereinafter more fully spelled out, require adequate security from such Capital Note holders to protect it against any loss by virtue of expenses, charges, and fees incident to any action so required. In the event that two or more groups of holders of Capital Notes each of which holds Capital Notes totaling twenty-five percent (25%) of the principal amount of all such Capital Notes then issued and outstanding direct the trustee to proceed in a conflicting manner(s), the trustee may interplead the funds into or may seek a declaratory determination of the conflict(s) from the District Court for Polk County, Iowa. 3.08 No holder of any Capital Note issued hereunder shall have the right to institute any suit, action, or proceeding in equity or at law for the execution of any trust or power hereof or for the endorsement or any remedy under this Indenture or any Capital Note issued hereunder unless: a. Such holder shall have previously given the Trustee written notice of some existing "event of default" and of the continuance thereof; b. The holders of twenty-five percent (25%) in principal amount of the Capital Notes at the time outstanding shall have requested the Trustee to exercise such power or right of action after the right to do so has accrued hereunder and have afforded the Trustee a reasonable opportunity to proceed upon such request; c. Such holders shall have offered to Trustee indemnity satisfactory to it against the costs, expenses, and liabilities to be incurred thereby; and d. The Trustee shall have failed or refused to comply with such request within a period of sixty (60) days. Compliance with the foregoing conditions shall at the option of the Trustee be a condition precedent to the exercise of the powers and trusts of this Indenture and to any action or proceeding for the enforcement of any remedy hereunder, and no holder of any Capital Note shall have any right to enforce any right on account of this Indenture or his Capital Note, except in the manner herein provided, and in any event all proceedings hereunder at law or in equity shall be instituted and maintained for the ratable benefit of all holders of outstanding Capital Notes in the manner and with the interest priority provided for in Section 1.05 and Section 3.06, and any other applicable provisions hereof. ARTICLE IV Trustee, Its Rights and Duties, and Successor Trustees 4.01 The Trustee, for itself and its successors, hereby accepts the trust created by this Indenture and assumes the duties imposed, but upon the following terms and conditions: a. Trustee shall be entitled to reasonable compensation for all services from time to time rendered by it under and by virtue of the terms of this Indenture including an acceptance fee, together with all expenses from time to time incurred by it, including fees paid for counsel and for legal services. The parties hereto shall agree upon Trustee's fees for ordinary services from time to time hereunder. In the event the parties do not agree, or in the event of extraordinary services by virtue of events of default or liquidation of Company, or any other matter which may require extraordinary services from Trustee, Trustee's compensation may be fixed by an appropriate court. Company covenants to pay all compensation to which Trustee may be entitled, including expenses and fees from time to time, promptly upon demand. b. Trustee shall not be responsible for the correctness of any recitals in this Indenture of any Capital Notes issued under and pursuant to the same (except certificates and authentications by Trustee). c. Trustee may employ and consult with counsel whenever deemed necessary, and the opinion of such counsel shall be full and complete authorization and protection to and for Trustee in respect of any action taken or suffered by it in good faith and in accordance with the opinion of such counsel. d. Trustee may rely upon the correctness of any certificate or statement, of the President or a Vice President of Company furnished from time to time under the terms hereof and shall not be liable in any way for any act done or any omission to act in reliance on any such certificate or statement. e. Trustee hereunder shall have no responsibility for determining when or whether an "Event of Default" has occurred except for those events of default which would come to its knowledge and attention in the ordinary course of business under this form of Trust Indenture. 4.02 Trustee shall not be liable for any act of commission or omission on its part in connection with the discharge and perfor- mance of its duties and obligations under this Indenture and any Capital Notes issued pursuant hereto, except to the extent that any such act or omission shall constitute willful misconduct or negligence, and reliance upon certificates and statements of Company, the President or a Vice President thereof, opinions of counsel (whether counsel for Company or not), and good faith errors in judgment by a responsible officer or officers of Trustee shall not be held to be negligent in any case. 4.03 Trustee shall keep at all times a current list of the names and addresses of registered Capital Note holders, issued and outstanding under the terms of this Indenture. Company shall promptly notify Trustee of all changes in names or addresses of Capital Note holders known to it. 4.04 Trustee may resign whenever it may elect to so do, sixty (60) days after a written notice of its intention to so do has been served on Company and on all Capital Note owners shown by the records of Trustee (notices in all cases to be by ordinary, first class mail with the date of service thereof), and in the event Trustee shall resign, or in the event Trustee shall be dissolved and cease to do business as a bank or trust company, Company shall designate by an appropriate written instrument a successor Trustee which shall be a state or national bank or trust company with its principal office in the state of Iowa. Any successor trustee appointed by Company under the terms hereof shall have all rights, powers, and duties of the original Trustee as herein provided, and whenever in this Indenture the word "Trustee" appears or the Trustee is referred to, it shall mean and includes any and all successor Trustees who may be appointed hereunder. 4.05 Trustee shall not be in any manner precluded from buying, selling, owning, or dealing in Capital Notes issued pursuant to this agreement, either in its own right or as agent for others, as fully and completely as any other individual, firm, or corporation could do. 4.06 Trustee or Company may (and on written request of owners of twenty-five percent (25%) in principal amount of outstanding Capital Notes shall) call a meeting of all Capital Note owners for any appropriate purpose. Such meeting shall be called by giving a written notice of the time and place thereof by ordinary, first class mail to all Capital Note owners whose names and addresses are first shown in the records of Trustee, mailed not less than five (5) days prior to the date fixed for such meeting. The Company shall pay for the costs of calling and holding said meeting. 4.07 In any case in which Trustee is required or may deem it proper or advisable to give a notice to Company, a Capital Note holder or any other person, firm, or agency, such notice shall be given by ordinary, first class mail, addressed to the last known post office address of any such person, firm, or agency, and the time of service thereof shall be the time of mailing thereof. ARTICLE V 5.01 The Company and Trustee may make arrangements varying, amending or changing this Indenture as Company and Trustee shall from time to time deem proper without the approval of the note holders, provided only that no such amendment shall adversely affect any rights or interests of owners of Capital Notes then issued and outstanding under and pursuant to this Indenture. 5.02 Upon the execution of any Supplemental Indenture pursuant to the provisions of this Article V, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties, and immunities under this Indenture of the Trustee, the Company, and the holders of Capital Notes shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such Supplemental Indenture shall be and be deemed to be part of the terms and conditions of this Supplemental Indenture for any and all purposes. IN WITNESS WHEREOF, Brenton Banks, Inc. has caused this Supplemental Indenture to be executed in its name and on its behalf by its President, duly attested by its Secretary, with its corporate seal hereto attached, and Bankers Trust Company, Des Moines, Iowa, to evidence its acceptance of the trusts hereby created, has caused this instrument to be signed in its name and on its behalf by a duly authorized officer, all on or as of this 5th day of August, 1991. BRENTON BANKS, INC. BANKERS TRUST COMPANY By /s/ By /s/ Junius C. Brenton, Bryan Hall, Trust Officer President ATTEST: By /s/ Steven T. Schuler, Chief Financial Officer and Vice President/Treasurer/Secretary STATE OF IOWA ) ) ss. COUNTY OF POLK ) On this 8th day of August, 1991, before me, a Notary Public in and for Polk County, Iowa, personally appeared Junius C. Brenton, President, and Steven T. Schuler, Chief Financial Officer and Vice President/Treasurer/Secretary, of Brenton Banks, Inc., the corporation which executed the above and foregoing instrument, who being to me known as the identical persons who signed the foregoing instrument, and by me duly sworn, each for himself, did say that they are respectively the President and the Chief Financial Officer/Vice President/Secretary/Treasurer of said corporation, and that said instrument was by them signed and sealed on behalf of the said corporation by authority of its Board of Directors, and each of them acknowledged the execution of said instrument to be the voluntary act and deed of said corporation, by it and each of them voluntarily executed. IN WITNESS WHEREOF, I have hereunto signed my name and affixed my Notarial Seal the day and year last above written. (Seal) /s/ Pamela J. Slippy Notary Public in and for Polk County STATE OF IOWA ) ) ss. COUNTY OF POLK ) On this 2nd day of August, 1991, before me, a Notary Public in and for Polk County, Iowa, personally appeared Bryan Hall, of Bankers Trust Company, the corporation which executed the above and foregoing instrument, who being to me known as the identical person who signed the foregoing instrument, and by me duly sworn, did say that he is the Trust Officer of said corporation, and that said instrument was by him signed and sealed on behalf of the said corporation by authority of its Board of Directors, and he acknowledged the execution of said instrument to be the voluntary act and deed of said corporation, by it and by him voluntarily executed. IN WITNESS WHEREOF, I have hereunto signed my name and affixed my Notarial Seal the day and year last above written. (Seal) /s/ Nancy J. Anderson Notary Public in and for Polk County 7.00% Capital Notes Series M-19 through M-30 Due 1995 through 2006 7.25% Capital Notes Series N-19 through N-30 Due 1995 through 2006 7.50% Capital Notes Series R-19 through R-30 Due 1995 through 2006 7.75% Capital Notes Series T-19 through U-30 Due 1995 through 2006 8.00% Capital Notes Series U-19 through U-30 Due 1995 through 2006 8.25% Capital Notes Series V-19 through V-30 Due 1995 through 2006 8.50% Capital Notes Series W-19 through W-30 Due 1995 through 2006 8.75% Capital Notes Series X-19 through X-30 Due 1995 through 2006 9.00% Capital Notes Series Y-19 through Y-30 Due 1995 through 2006 9.25% Capital Notes Series B-19 through B-30 Due 1995 through 2006 9.50% Capital Notes Series A-19 through A-30 Due 1995 through 2006 9.75% Capital Notes Series C-19 through C-30 Due 1995 through 2006 10.00% Capital Notes Series D-19 through D-30 Due 1995 through 2006 10.25% Capital Notes Series E-19 through E-30 Due 1995 through 2006 10.50% Capital Notes Series F-19 through F-30 Due 1995 through 2006 10.75% Capital Notes Series H-19 through H-30 Due 1995 through 2006 11.00% Capital Notes Series I-19 through I-30 Due 1995 through 2006 11.25% Capital Notes Series L-19 through L-30 Due 1995 through 2006 11.50% Capital Notes Series O-19 through O-30 Due 1995 through 2006 11.75% Capital Notes Series S-19 through S-39 Due 1995 through 2006 12.00% Capital Notes Series Z-19 through Z-30 Due 1995 through 2006 12.25% Capital Notes Series P-19 through P-30 Due 1995 through 2006 12.50% Capital Notes Series SS-19 through SS-30 Due 1995 through 2006 12.75% Capital Notes Series AA-19 through AA-30 Due 1995 through 2006 13.00% Capital Notes Series BB-19 through BB-30 Due 1995 through 2006 13.25% Capital Notes Series CC-19 through CC-30 Due 1995 through 2006 13.50% Capital Notes Series DD-19 through DD-30 Due 1995 through 2006 13.75% Capital Notes Series EE-19 through EE-30 Due 1995 through 2006 14.00% Capital Notes Series FF-19 through FF-30 Due 1995 through 2006 EX-10.18 20 Exhibit 10.18 Indenture Agreement with respect to Capital Notes dated April 8, 1994. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1994. 219 EX-10.19 21 Exhibit 10.19 Indenture Agreement with respect to Capital Notes dated April 10, 1995. This Indenture Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1995. 220 EX-10.20 22 Exhibit 10.20 Indenture Agreement with respect to Capital Notes dated April 10, 1996. 221 This Indenture Agreement contains the same terms, conditions and provisions as set forth in the Indenture Agreement dated April 10, 1995 (Exhibit 10.21, which is incorporated by reference from Form 10-K of Brenton Banks, Inc., for the year ended December 31, 1995), except for series number, maturity date and date executed. 222 EX-10.21 23 Exhibit 10.21 Split Dollar Insurance Agreement between the Company, William H. Brenton Crummy Trust and William H. Brenton Crummy Trust II, dated November 23, 1994. This Split Dollar Insurance Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1994. 223 EX-10.22 24 Exhibit 10.22 Split Dollar Insurance Agreement between the Company and Brenton Life Insurance Trust for the benefit of C. Robert Brenton, dated August 12, 1994. This Split Dollar Insurance Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for year ended December 31, 1994. 224 EX-10.23 25 Exhibit 10.23 Split Dollar Insurance Agreement between the Company and Brenton Life Insurance Trust for the benefit of Junius C. Brenton, dated January 12, 1997. 225 Split Dollar Insurance Agreement Collateral Assignment AGREEMENT, made and entered into this 12th day of January, , by and between Brenton Banks, Inc., Des Moines, Iowa ("Company"), and Brenton Life Insurance Trust, an irrevocable trust, ("Owner") for the benefit of Junius C. Brenton, Des Moines, Iowa. WHEREAS, Junius C. Brenton is a valued Director of the Company, and Company wishes to provide additional inducement for Junius C. Brenton's continued involvement with the Company, and as additional compensation, Company wishes to assist Junius C. Brenton with respect to a personal life insurance program by entering into this Split Dollar Insurance Agreement. NOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein, the parties hereto agree as follows: 1. Policy. The life insurance policy (the "Policy") with which this Agreement deals is identified in Exhibit "A" attached hereto and by this reference incorporated herein. In the event that this Agreement deals with multiple life insurance policies, each policy shall be identified in a separate Exhibit "A" attached hereto, and all references herein to the Policy shall include all policies with respect to which a separate Exhibit "A" is attached hereto. 2. Ownership. The Owner shall at all times be the owner of the Policy, and shall have the sole right to exercise all ownership rights granted to the owner by the terms of the Policy. It is the express intention of the parties hereto to reserve to the Owner all rights in the Policy granted by the terms of the Policy, including, but not limited to, the right to borrow against the Policy, the right to assign the Owner's interest in the Policy, the right to change the beneficiary of the Policy, the right to exercise settlement options, and the right to surrender or cancel the Policy (in whole or in part). The Company shall not have nor exercise any right in and to the Policy which could in any way endanger, defeat or impair any of the rights of the Owner in the Policy. The only rights in and to the Policy granted to the Company shall be its security interest in the cash value of the Policy and its right to receive a portion of the death benefit of the Policy, all as provided herein. 3. Premiums. Premiums on the Policy shall be paid by the parties hereto as set forth in Exhibit "B" attached hereto and by this reference incorporate herein. 4. Interest of Company in the Policy. The Company's interest in the Policy shall be limited to the following rights in the cash value and to a portion of the death benefit of the Policy as set forth below: a. In the event the Policy is totally surrendered or canceled by the Owner, the Company shall receive from the surrender proceeds of the Policy: (I) the aggregate amount of cumulative premiums paid by the Company, plus (ii) an amount, not less than zero, which is calculated by taking 5.2 percent per annum of the total amount of cumulative premiums paid by the Company to date less $150,000.00 ("Amount Due Company"). b. Upon the death of the survivor of Junius C. Brenton and Junius C. Brenton's spouse, while the Policy remains in force, the Company shall receive from the death benefit proceeds of the Policy the Amount Due Company. c. In the event of the termination of this Agreement, the Company shall be repaid by the Owner the Amount Due Company. d. In the event the Owner obtains a policy loan with respect to the Policy or in the event the Policy is partially surrendered and such loan or partial surrender causes the net cash surrender value of the Policy to be a sum less than the Amount Due Company, the Owner will repay to the Company a portion of any Policy loan proceeds or partial surrender proceeds to the Company so as to cause the net cash surrender value of the Policy following the policy loan or partial surrender to be equal to or exceed the Amount Due Company. As used in this Agreement, the term "net cash surrender value" shall mean the cash surrender value of the Policy, less the amount of any then existing loans or withdrawals against the Policy obtained by the Owner. As used in this Agreement, the term "the aggregate amount of cumulative premiums paid by the Company" shall mean the aggregate amount of premiums paid by the Company net of any repayment to the Company of such amount. 5. Collateral Assignment. Contemporaneously herewith the Owner has assigned the Policy as collateral security to secure payment of the amounts payable to Company identified herein under a form of Collateral Assignment which has been filed with the insurance company issuing the Policy. In the event of a total or partial surrender of the Policy, termination of this Agreement or upon the death of the survivor of Junius C. Brenton and Junius C. Brenton's spouse, the amounts payable to the Company identified herein shall be paid to the Company in accordance with the terms of such Collateral Assignment. 6. Upon the death of the survivor of Junius C. Brenton and Junius C. Brenton's spouse, the balance of the death benefit under the Policy in excess of the amount payable to the Company under the provisions hereof, if any, shall be paid directly to the beneficiary or beneficiaries designated by the Owner in the manner and in the amounts provided by the beneficiary designation of the Policy filed with the insurance company issuing the Policy. 7. Termination. This Agreement may be terminated at any time upon the mutual agreement of the parties hereto. 8. Assignment by Owner. In the event the Owner shall transfer all interest in the Policy to a transferee, then all of the Owner's interest in the Policy and in this Agreement shall be vested in the transferee, who shall become a substituted party hereto and who shall become bound by the provisions hereof, and the Owner shall have no further interest in the Policy or in this Agreement. 9. Assignment by Company. The Company shall not assign any of its rights in the Policy or in this Agreement to anyone other than the Owner (or the Owner's transferee, if the Owner has transferred its rights in the Policy) without the prior written consent of the Owner (or the Owner's transferee, if the Owner has transferred its rights in the Policy). Any attempted assignment or transfer by the Company in violation of this paragraph shall be null and void and of no force and effect. 10. Insurer Liability. The insurance company which issues the Policy shall not be deemed to be bound by the provisions of this Agreement nor to have notice of the terms of this Agreement. Any and all liability of the insurance company issuing the Policy shall be determined solely by reference to the terms of the Policy, any applicable riders to the Policy, the beneficiary designation with respect to the Policy, the Collateral Assignment with respect to the Policy and any other documents filed with the insurance company and accepted and acknowledged by the insurance company. 11. Split Dollar Plan. This Agreement is intended to qualify the ownership of the Policy as a collateral assignment method split dollar life insurance Director benefit plan as described in Revenue Ruling 64-328, and shall be administered so as to qualify as such a plan. 12. Entire Agreement. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and cannot be amended, altered, modified, except by a written instrument signed by each of the parties hereto. 13. Notices. Any notice, consent or demand required or permitted to be given under the provisions of this Agreement by one party to another shall be in writing, shall be signed by the party giving the notice, and shall be given either by delivery to the other party personally, or by mailing, by United States certified mail, postage prepaid, to the other party, addressed to the other party's last known mailing address as shown on the records of the Company. In the event such notice is given by mailing, the date of mailing shall be deemed the date of the giving of such notice, consent or demand. 14. Binding on Successors and Assigns. This Agreement shall bind and inure to the benefit of the parties and their respective heirs, successors and assigns. 15. Governing Law. This Agreement shall be deemed made in the state of Iowa, the this Agreement and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of the state of Iowa. 16. Severability. In the event a particular provision of this Agreement is held to be invalid under applicable law, effect shall nevertheless be given to all valid provisions hereof to further the objectives of this Agreement. 17. Interpretation. Where appropriate in this Agreement, words used in the singular shall include the plural, and words used in the masculine or neuter shall include the feminine. 18. Named Fiduciary and Plan Administrator. For the purposes of the Director Retirement Security Act of 1974 (ERISA), the Company shall be the "Named Fiduciary" and Plan Administrator of the split dollar insurance plan for which this Agreement is hereby designated the written plan instrument. The Company, as Named Fiduciary, shall have authority to control and manage the operation and administration of this Agreement, and it shall be responsible for establishing and carrying out a funding policy and method consistent with the objectives of this Agreement. Any decision by the Company denying a claim for benefits under this Agreement shall be stated in writing, set forth specific reasons for the denial, and be delivered or mailed to the claimant. All claim procedures under this split dollar insurance plan shall be performed in compliance with the requirements of ERISA. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the year and date first above written. Brenton Banks, Inc. Company By /s/ Steven T. Schuler Its CFO/Treasurer/Secretary Owner By __________________________ Kenneth R. Brenton, Trustee of the Brenton Family Life Insurance Trust EXHIBIT "A" Policy Number: 53595674 Issued by: Manulife Financial Providing for initial death benefit proceeds of $2,000,000. This policy is a survivorship life insurance policy on the lives of Junius C. Brenton and Sue Rutledge Brenton, Junius C. Brenton's wife, which pays a death benefit only upon the death of the survivor of Junius C. Brenton and Sue Rutledge Brenton. EXHIBIT "B" Premiums The Company shall pay annually $48,314 of the premiums due on the Policy for 6 years. Collateral Assignment THIS ASSIGNMENT is made and entered into this 12th day of January, 1997, by the undersigned as owner (the "Owner") of a certain life insurance policy number 53595674 (the "Policy") issued by Manulife Financial (the "Insurer") upon the lives of Junius C. Brenton and Sue Rutledge Brenton, and Brenton Bank, Inc. (the "Assignee"). WHEREAS, Junius C. Brenton ("Director") is a valued Director of the Assignee, and WHEREAS, Owner has entered into a Split Dollar Agreement with the Assignee (the "Agreement"), and WHEREAS, in consideration of the Assignee agreeing to make certain premium payments, the Owner agrees to grant the Assignee a security interest in the Policy as collateral security for the repayment of the Amount Due Company. NOW, THEREFORE, the undersigned Owner hereby assigns, transfers and sets over to the Assignee the following specific rights in the Policy subject to the following terms and conditions: 1. This Assignment is made, and the Policy is to be held, as collateral security for all liabilities of the Owner to the Assignee, either now existing or that may hereafter arise, pursuant to the terms of the Agreement. 2. The Assignee's interest in the Policy shall be strictly limited to: a. The right to be repaid from the surrender proceeds of the Policy: (I) the aggregate amount of cumulative premiums paid by the Company, plus (ii) an amount, not less than zero, which is calculated by taking 5.2 percent per annum of the total amount of cumulative premiums paid by the Company to date less $150,000.00 ("Amount Due Company") in the event the Policy is totally surrendered or canceled by the Owner. b. The right to be repaid from the death benefit proceeds of the Policy the Amount Due Company upon the death of the survivor of the Director and the Director's spouse, while the Policy remains in force. c. The right to be repaid the Amount Due Company in the event of the termination of the Agreement. d. The right to be repaid a portion of any Policy loan proceeds or partial surrender proceeds paid to the Owner so as to cause the net cash surrender value of the Policy to be equal to or exceed the Amount Due Company in the event the Owner obtains a Policy loan or in the event the Policy is partially surrendered and such loan or partial surrender causes the net cash surrender value of the Policy to be a sum less than the Amount Due Company. As used in this Assignment, the term "net cash surrender value" shall mean the cash surrender value of the Policy, less the amount of any then existing loans or withdrawals against the Policy obtained by the Owner. As used in this Assignment, the term "the aggregate amount of cumulative premiums paid by the Assignee" shall mean the aggregate amount of premiums paid by the Assignee net of any repayment to the Assignee of such amount. 3. The Owner shall retain all incidents of ownership in the Policy, including, but not limited to, the sole and exclusive rights to: borrow against the Policy; make withdrawals from the Policy; assign Owner interest in the Policy; change the beneficiary of the Policy; exercise settlement options; and, surrender or cancel the Policy (in whole or in part). All of these incidents of ownership shall be exercisable by the Owner unilaterally and without the consent of any other person. 4. The Assignee shall, upon request, if the Policy is in the possession of the Assignee, forward the Policy to the Insurer, without unreasonable delay, for change of beneficiary, any election of optional mode of settlement, or the exercise of any other right reserved by the Owner. 5. The Insurer is hereby authorized to recognize the Assignee's claims, including the validity or the amount of any liabilities of the Owner to the Assignee under the Agreement, the existence of any default therein, the giving of any notice required therein or herein, or the application to be made by the Assignee of any amounts to be paid to the Assignee. Upon the Insurer giving prior written notice to Owner of the proposed payment of amounts to the Assignee, the receipt of the Assignee for any sums received by it shall be a full discharge and release therefore to the Insurer. 6. The Insurer shall be fully protected in recognizing a request made by the Owner for surrender or cancellation of the Policy, in whole or in part, or in recognizing a request made by the Owner for any loans against the Policy permitted by the terms of the Policy. In the event this request is made, upon prior written notice thereof to the Assignee the Insurer may pay the proceeds of any surrender, cancellation, or loan to the sole order of the Owner, or as the Owner shall direct. 7. Upon the full payment of the liabilities of the Owner to the Assignee pursuant to the Agreement, the Assignee shall execute an appropriate release of this Collateral Assignment. 8. It is the express intention of the Owner to assign a limited interest in the Policy to the Assignee as security for certain premium payments made by the Assignee, without giving the Assignee any incidents of ownership in the Policy within the meaning of section 2042 of the Internal Revenue Code (and regulations thereunder), or any similar provision of subsequent law. All provisions of this Collateral Assignment (and of the Agreement) shall be construed and exercised so as to effect this intention. IN WITNESS WHEREOF, the Owner and Assignee have executed this Assignment and the Insurer has acknowledged its acceptance of this Assignment effective the day and year first above written. Owner By _______________________________ Kenneth R. Brenton, Trustee of the Brenton Family Life Insurance Trust Assignee Brenton Banks, Inc. By /s/ Steven T. Schuler Its CFO/Treasurer/Secretary ACCEPTED: Insurer Manulife Financial By _________________________ Its ________________________ EX-10.24 26 Exhibit 10.24 Agreement between Robert L. DeMeulenaere and the Company regarding the change in control arrangements, dated December 31, 1994. This Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1994. 237 EX-10.25 27 Exhibit 10.25 Agreement between Larry A. Mindrup and the Company regarding the change in control arrangements, dated December 31, 1994. This Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1994. 238 EX-10.26 28 Exhibit 10.26 Agreement between Norman D. Schuneman and the Company regarding the change in control of arrangements, dated December 31, 1994. This Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1995. 239 EX-10.27 29 Exhibit 10.27 Twelfth Amendment to Data Processing Agreement dated July 1, 1995, by and between ALLTEL Financial Information Services, Inc. (formerly Systematics, Inc. and Systematics Financial Services, Inc.) and Brenton Banks Services Corp. (formerly Brenton Information Systems, Inc.). This Twelfth Amendment to Data Processing Agreement is incorporated by reference from Form 10-Q of Brenton Banks, Inc. for the quarter ended Septmber 30, 1995. 240 EX-10.28 30 Exhibit 10.28 Thirteenth Amendment to Data Processing Agreement dated December 1, 1995, by and between ALLTEL Financial Information Services, Inc. (formerly Systematics Financial Services, Inc.) and Brenton Bank (formerly Brenton Bank Services Corp.). This Thirteenth Amendment to Data Processing Agreement is incorporated by reference from Form 10-K of Brenton Banks, Inc. for the year ended December 31, 1995. 241 EX-11 31 Exhibit 11 Statement of computation of earnings per share. 242 Statements re: Computation of Earnings Per Share Brenton Banks, Inc.
December 31, 1996 1995 1994 Net income $14,015,430 $10,407,354 $10,107,387 Average common shares outstanding 8,223,543 8,440,493 8,679,515 Average shares under long-term stock compensation plan 88,877 87,660 67,538 Average common equivalent shares outstanding 8,312,420 8,528,153 8,747,053 Earnings per share $ 1.69 1.22 1.15
Note: Amounts are restated to reflect the 10% common stock dividend effective in 1996. 243 EX-12 32 Exhibit 12 Statement of computation of ratios. 244 Statements re: Computation of Ratios Item 1(l) Business - Statistical Disclosure VI. Return on Equity and Assets Brenton Banks, Inc.
(Dollars in thousands) December 31, 1996 1995 1994 Return on average total assets: Net income (before deduction of minority interest) $ 14,618 11,058 10,698 * divided by * Average assets $ 1,582,894 1,561,226 1,521,189 Ratio 0.92% 0.71% 0.70% Return on average common stockholders' equity: Net income $ 14,015 10,407 10,107 * divided by * Average common stockholders' equity $ 119,170 115,183 111,949 Ratio 11.76% 9.04% 9.03% Common dividend payout ratio: Cash dividends per share $ 0.454 0.409 0.400 * divided by * Net income per share $ 1.69 1.22 1.15 Ratio 26.86% 33.58% 34.65% Average equity to average assets: Average equity $ 119,170 115,183 111,949 * divided by * Average assets $ 1,582,894 1,561,226 1,521,189 Ratio 7.53% 7.38% 7.36% Equity to assets ratio: Common stockholders' equity excluding unrealized gains (losses) on assets available for sale $ 120,877 118,175 115,547 * divided by * Total assets excluding unrealized gains (losses) on assets available for sale $ 1,631,018 1,581,421 1,586,444 Ratio 7.41% 7.47% 7.28% 245 December 31, 1996 1995 1994 Tier 1 leverage capital ratio: Common stockholders' equity excluding unrealized gains (losses) on assets available for sale $ 120,877 118,175 115,547 Minority interest 4,615 4,434 4,220 Less: intangibles (2,704) (5,282) (5,499) Less: minimum MSR's to be deducted (115) -- -- Tier 1 capital $ 122,673 117,327 114,268 * divided by * Quarterly average total assets excluding unrealized gains (losses) on assets available for sale 1,613,223 1,582,779 1,581,327 Less: intangibles (2,704) (5,282) (5,499) Less: minimum MSR's to be deducted (115) -- -- Tier 1 assets $ 1,610,404 1,577,497 1,575,828 Ratio 7.62% 7.45% 7.23% Primary capital to assets: Common stockholders' equity excluding unrealized gains (losses) on assets available for sale $ 120,877 118,175 115,547 Minority interest 4,615 4,434 4,220 Allowance for loan losses 11,328 11,070 10,913 Primary capital $ 136,820 133,679 130,680 * divided by * Total assets excluding unrealized gains (losses) on assets available for sale $ 1,631,018 1,581,421 1,586,444 Allowance for loan losses 11,328 11,070 10,913 Allowable assets $ 1,642,346 1,592,491 1,597,357 Ratio 8.33% 8.40% 8.18% Net Noninterest Margin: Noninterest income $ 23,327 17,847 16,593 Less: Securities gains (losses) 321 (3) (340) Less: Noninterest expense 56,091 55,051 56,657 Net noninterest income (33,085) (37,201) (39,724) * divided by * Year-to-date average assets $ 1,582,894 1,561,226 1,521,189 Ratio -2.09% -2.38% -2.61% 246 December 31, 1996 1995 1994 Efficiency Ratio: Noninterest expense $ 56,091 55,051 56,657 * divided by * Noninterest income 23,327 17,847 16,593 Less: Securities gains (losses) 321 (3) (340) Less: Loan gains (losses) 84 (232) 168 T.E. net interest income 59,238 56,610 59,153 Subtotal 82,160 74,692 75,918 Ratio 68.27% 73.70% 74.63%
247 EX-13 33 Exhibit 13 The Appendix to the Proxy for Brenton Banks, Inc. for the 1996 calendar year. 248 EX-13 34 APPENDIX TO PROXY BRENTON BANKS, INC. APPENDIX TO THE PROXY STATEMENT FISCAL YEAR 1996 TABLE OF CONTENTS PAGE General Information 1 Financial Highlights 2 Management's Discussion and Analysis 3 Consolidated Average Balances and Rates 9 Selected Financial Data 10 Consolidated Statements of Condition 11 Consolidated Statements of Operations 12 Consolidated Statements of Cash Flows 13 Consolidated Statements of Changes in Common Stockholders' Equity 14 Notes to Consolidated Financial Statements 15 Management's Report 28 Independent Auditors' Report 28 Stock Information 29 Corporate Structure 30 BRENTON BANKS, INC. GENERAL INFORMATION Brenton Banks, Inc. (the "Company") is a bank holding company registered under the Bank Holding Company Act of 1956 and a savings and loan holding company under the Savings and Loan Holding Company Act. Brenton Banks, Inc. was organized as an Iowa corporation under the name of Brenton Companies in 1948. Subsequently, the Company's name was changed to its current name, Brenton Banks, Inc. Brenton Banks, Inc. is Iowa's largest, home-based bank holding company, with 45 service locations in metropolitan markets and regional economic centers across the state. The Company offers a complete range of financial products and services - including retail, agricultural and commercial banking; trust and investment management services; investment, insurance and real estate brokerage; mortgage banking; cash management and international banking services as well as our own proprietary mutual funds. The Company's stock trades on the NASDAQ national market under the symbol BRBK or BrentB.
BRENTON BANKS, INC. AND SUBSIDIARIES FINANCIAL HIGHLIGHTS 1996 1995 1994 Operating Results Net interest income $ 56,052,142 53,332,143 5,450,526 Provision for loan losses 2,900,000 1,864,801 1,987,909 Total noninterest income 23,327,441 17,846,740 16,592,988 Total noninterest expense 56,090,571 55,051,267 56,656,922 Income before income taxes and minority interest 20,389,012 14,262,815 13,398,683 Net income 14,015,430 10,407,354 10,107,387 Per Common and Common Equivalent Share*** Net income $ 1.69 1.22 1.15 Cash dividends .454 .409 .40 Book value, including unrealized gains (losses)* 15.08 14.20 12.75 Book value, excluding unrealized gains (losses)** 14.95 14.04 13.35 Closing bid price 27.63 19.32 16.59 At December 31 Assets $1,632,095,082 1,582,779,320 1,581,326,849 Loans 941,943,513 910,193,212 970,214,498 Nonperforming loans 6,167,000 5,619,000 5,022,000 Deposits 1,353,057,111 1,361,942,715 1,340,283,110 Common stockholders' equity 121,954,229 119,533,631 110,430,345 Ratios Return on average common stockholders' equity (ROE) 11.76% 9.04 9.03 Return on average assets (including minority interest) (ROA) .92 .71 .70 Net interest margin 4.03 3.89 4.12 Net noninterest margin (2.09) (2.38) (2.61) Efficiency ratio 68.27 73.70 74.63 Loan to deposit ratio 69.62 66.83 72.39 Allowance for loan losses to total loans 1.20 1.22 1.12 Primary capital to assets** 8.33 8.40 8.18 Equity to assets** 7.41 7.47 7.28 Tier 1 leverage capital ratio** 7.62 7.45 7.23 Nonperforming loans as a percent of loans .65 .62 .52 Net charge-offs as a percent of average loans .29 .18 .10 Allowance for loan losses as a percent of nonperforming loans 183.69 197.01 217.30 * Including unrealized gains (losses) on securities available for sale. ** Excluding unrealized gains (losses) on securities available for sale. *** Restated for the 10% common stock dividend effective in 1996.
Management's Discussion and Analysis For 1996, Brenton Banks, Inc. and subsidiaries (the "Company") reported net income of $14,015,430 compared to 1995 earnings of $10,407,354. Capital Resources Common stockholders' equity totaled $121,954,229 as of December 31, 1996, a 2.0 percent increase from the prior year. In October 1996, the Board of Directors (the "Board") declared a 10 percent common stock dividend. As a result of this action, each shareholder received one additional share of common stock for every 10 shares they owned. Fractional shares were paid in cash. All per-share data has been restated to reflect the 10 percent common stock dividend. Cash dividends for 1996 totaled $3,748,653 or $.454 per common share, which represents an increase of 11.0 percent over 1995 dividends of $.409 per share. The dividend payout ratio for 1996 was 26.9 percent of earnings per share. As part of the Company's ongoing stock repurchase plan, 347,700 shares of common stock were repurchased during 1996 at a cost of $8,248,331. The Board had given the Company authorization to repurchase up to $10 million during 1996. Since the inception of the plan in 1994, the Company has repurchased 650,633 shares at a total cost of $13,929,392. The Board has extended this plan for 1997 by authorizing up to an additional $10 million for stock repurchase. The Company continues to monitor its capital position to balance the goals of maximizing return on average equity, while maintaining adequate capital levels for regulatory purposes. The Company's risk-based core capital ratio at December 31, 1996, was 11.57 percent and the total risk-based capital ratio was 12.64 percent. These ratios exceeded the minimum regulatory requirements of 4.00 and 8.00 percent, respectively. The Company's tier 1 leverage capital ratio, which measures capital excluding intangible assets, was 7.62 percent at December 31, 1996, exceeding the regulatory minimum requirement for well-capitalized institutions of 5.0 percent. The debt-to-equity ratio of Brenton Banks, Inc. (the "Parent Company") was 9.2 percent at December 31, 1996, compared to 10.4 percent at the end of 1995. The Parent Company's $2 million line of credit with a regional bank was unused throughout 1996. Long- term borrowings of the Parent Company at December 31, 1996, consisted entirely of $11,248,000 of capital notes. Brenton Banks, Inc. common stock closed on December 31, 1996, at a bid price of $27.63, an increase of 43.0 percent over the prior year-end. The closing price at December 31, 1996, was 183 percent of the book value per share of $15.08. The year-end stock price represented a price-to-1996-earnings multiple of 16.3 times. Brenton Banks, Inc. continues to pursue acquisition and expansion opportunities which will enhance the financial performance of the Company as well as strengthen the Company's presence in current and new markets. There are currently no pending acquisitions that would require Brenton Banks, Inc. to secure capital from public or private markets. Forward-looking Information Forward-looking information relating to the financial results or strategies of the Company are referenced throughout Management's Discussion and Analysis. The following paragraphs identify forward-looking statements and the risks that need to be considered when reading those statements. Forward-looking statements include such words as believe, expect, anticipate, target, goal, objective or other words with similar meaning. The Company is under no obligation to update such forward-looking information statements. The risks involved in the operations and strategies of the Company include competition from other financial institutions, changes in interest rates, changes in economic or market conditions and changes in regulations from the federal and state regulators. These risks, which are not all inclusive, cannot be estimated. Asset-Liability Management The Company has a fully-integrated asset-liability management system to assist in managing the balance sheet. The process, which is used to project the results of alternative investment decisions, includes the development of simulations that reflect the effects of various interest rate scenarios on net interest income. Management analyzes the simulations to manage interest rate risk, the net interest margin and levels of net interest income. The goal is to structure the balance sheet so net interest margin fluctuates in a narrow range during periods of changing interest rates. The Company currently believes that net interest income would fall by less than 4 percent if interest rates increased or decreased by 300 basis points over a one-year time horizon. This is within the Company's policy limits. The slope of the yield curve is also a major determinant in the net interest income of the Company. Generally, the steeper the intermediate treasury to LIBOR curve, the better the prospects for net interest income improvement. The Company continues to reduce its reliance on residential real estate loans with long repricing periods. When appropriate for interest rate management purposes, the Company will consider securitization of real estate loans. Another key to interest rate risk management is continuing to increase variable rate loans as a percent of total earning assets. In addition to normal balance sheet instruments, the Company has utilized Federal Home Loan Bank borrowings and interest rate swaps to reduce interest rate risk. Liquidity The Company actively monitors and manages its liquidity position with the objective of maintaining sufficient cash flows to fund operations and meet customer commitments. Federal funds sold, loans held for sale and investment securities available for sale are readily marketable assets. Maturities of all investment securities are managed to meet the Company's normal liquidity needs. Investment securities available for sale may be sold prior to maturity to meet liquidity needs, to respond to market changes or to adjust the Company's interest rate risk position. Federal funds sold and assets available for sale comprised 29.5 percent of the Company's total assets at December 31, 1996. Net cash provided from operations of the Company is another major source of liquidity and totaled $14,997,716 in 1996, $8,388,374 in 1995 and $18,524,837 in 1994. These strong cash flows from operations are expected to continue in the foreseeable future. The Company has historically maintained a stable deposit base and a relatively low level of large deposits which result in a low dependence on volatile liabilities. At December 31, 1996, the Company had borrowings of $57,700,000 from the Federal Home Loan Bank ("FHLB") of Des Moines, of which $52,700,000 were used as a means of providing long-term, fixed-rate funding for certain fixed- rate assets and managing interest rate risk. The remaining $5,000,000 represents an advance on a variable rate, short-term $10,000,000 line of credit used to fund mortgage loans originated for sale. The Company had additional borrowing capacity available from the FHLB of approximately $80 million at December 31, 1996. The combination of high levels of potentially liquid assets, strong cash flows from operations, low dependence on volatile liabilities and additional borrowing capacity provided strong liquidity for the Company at December 31, 1996. The Parent Company had sufficient cash flow and liquidity at December 31, 1996. The primary funding source for the Parent Company is dividends from its subsidiaries. Dividends of approximately $16 million were available to be paid to the Parent Company by subsidiary banks without reducing capital ratios below regulatory minimums. At the end of 1996, the Parent Company had $5.6 million of interest-bearing deposits with banks, as well as additional borrowing capacity. Results of Operations - 1996 Compared to 1995 Net Income For the year ended December 31, 1996, Brenton Banks, Inc. recorded net income of $14,015,430, an increase of 34.7 percent over 1995, which totaled $10,407,354. Earnings per common share were $1.69 compared to $1.22 for 1995. Return on average assets (ROA) was .92 percent in 1996, compared to .71 percent in 1995. The return on average equity (ROE) was 11.76 percent, compared to 9.04 percent one year earlier. Net Interest Income Net interest income rose 5.1 percent to $56,052,142 for 1996. Both average earning assets and average interest-bearing liabilities increased 1.0 percent from 1995. The Company experienced a favorable change in the mix of earning assets and interest-bearing liabilities which contributed to an increase in net interest margin of 14.1 basis points over 1995. The average rate earned on earning assets declined 5.9 basis points, while the average rate paid on interest-bearing liabilities declined 22.4 basis points. The net interest spread, which is the difference between the rate earned on assets and the rate paid on liabilities, rose to 3.58 percent from 3.41 percent last year. Net interest margin, which is tax equivalent net interest income as a percentage of average earning assets, averaged 4.03 percent in 1996 compared to 3.89 percent in 1995. To improve net interest margin and lessen interest rate risk, the Company continued its strategy of de- emphasizing portfolio real estate loans and developing more commercial and consumer loan business. Loan Quality Loan quality remains strong with nonperforming loans at December 31, 1996 totaling $6,167,000 or .65 percent of loans. This compares to .62 percent at December 31, 1995, or $5,619,000. Nonperforming loans include loans on nonaccrual status, loans that have been renegotiated to below market interest rates or terms, and loans past due 90 days or more. The majority of the increase in nonperforming loans was related to two loans that were restructured within the commercial loan portfolio. The allowance for loan losses, which totaled $11.3 million, represented 183.69 percent of nonperforming loans at the end of 1996, compared to 197.01 percent one year ago. The provision for loan losses totaled $2,900,000 for the year ended December 31, 1996, compared to $1,864,801 for 1995. The increase of $1,035,199 in provision is primarily related to a 933,535, or 54.7 percent, increase in net loan charge-offs during 1996. The Company's net charge-offs as a percent of average loans were .29 percent for 1996 compared to .18 percent for 1995. Loan losses for 1996 were concentrated in the consumer loan portfolio. Loan quality control and risk management are carefully balanced with goals for loan growth. The Company has a formal structure for reviewing and approving all loans. Documentation and loan quality reviews are performed routinely by internal loan review personnel, as well as by regulatory examiners. The allowance for loan losses represents a reserve available to absorb estimated possible future loan losses within the loan portfolio. The allowance is based on management's judgment after considering various factors such as the current and anticipated economic environment, historical loan loss experience, and most importantly, the evaluation of larger individual loans by lending officers and internal loan review personnel. Using the Company's standard evaluation process, individual loan officers evaluate loan characteristics, the borrower's financial condition and collateral values. From these assessments, the Reserve Adequacy Committee performs quarterly reviews of the loan portfolio quality, quantifies the results and reviews the calculations of the required allowance for loan losses. In addition, the Reserve Adequacy Committee approves charge-offs and reviews subsequent collection action plans for problem credits. Management believes the allowance for loan losses at December 31, 1996, was sufficient to absorb potential loan losses within the portfolio. Net Noninterest Margin To measure operating efficiency, the Company uses the net noninterest margin, which is the difference between noninterest income and noninterest expense as a percent of average assets. For 1996, the net noninterest margin improved to (2.09) percent compared to (2.38) percent in 1995. Another ratio that the Company utilizes to measure productivity is the efficiency ratio. This ratio divides noninterest expense by the sum of tax-equivalent net interest income plus noninterest income (excluding gains and losses on the sale of securities and loans). At December 31, 1996, the Company's efficiency ratio was 68.27 percent, compared to 73.70 percent one year ago. To enhance operating efficiency throughout the organization, the Company continues to focus on cost management and the development of strategic improvements in noninterest income and expense. Noninterest Income The Company achieved record levels of noninterest income in 1996. For 1996, total noninterest income (excluding securities transactions) increased 28.9 percent to $23,006,185 from $17,849,743 one year ago. Noninterest income (excluding securities gains and losses) for 1996 represented 1.45 percent of average assets and 41.04 percent of total operating income, which were the highest levels in the history of the Company. All categories of noninterest income reflect strong gains from the prior year. Service charges on deposit accounts rose 21.0 percent in 1996 compared to one year ago. This growth related to full implementation of standardized service charges as well as a new focus on collecting a higher percentage of fees assessed. Investment brokerage commissions totaled $3,766,436 for 1996, an increase of 23.7 percent over the 1995 total of $3,044,107. Strong financial markets and successful new sales initiatives drove the increase in this category. Insurance commissions and fees increased 24.6 percent to $2,915,666 in 1996 due primarily to higher sales of both credit- related insurance and insurance agency operations. Mortgage banking income totaled $2,168,593 for 1996 compared to $1,427,342 in 1995, an increase of 51.9 percent. This increase is attributable to a higher volume of real estate mortgage loan originations, which totaled $110.8 million, and a greater percentage of loans being sold into the secondary market with the servicing rights being retained. Fiduciary income rose 13.2 percent to $2,744,530 in 1996 compared to $2,425,105 in 1995. This increase in revenue is related to increased volumes of personal trusts, investment management fees and employee benefit plans. Other operating income increased by $1,288,140 when comparing 1996 to 1995. Gains on the sale of loans of $83,440 were recorded in 1996 versus losses in 1995 of $232,454. Securities transactions produced an additional increase in noninterest income. Securities gains of $321,256 were recorded in 1996 versus losses of $3,003 in 1995. The growth in various noninterest income categories has enabled the Company to reach targeted levels of total income. The Company will continue to focus on providing a broad array of financial products and services to our customers that generate fee income. The continued growth rate of fee income could be vulnerable to future economic conditions and competition by other financial institutions that cannot be estimated by the Company. Noninterest Expense Total noninterest expense increased 1.9 percent in 1996 to $56,090,571 from $55,051,267 one year ago. Noninterest expense for 1996 includes a nonrecurring charge for a special assessment by the FDIC. This assessment is based upon all deposits insured by the Savings Association Insurance Fund (SAIF) as of March 31, 1995, and equals approximately 65.7 basis points per $100 of SAIF-insured deposits. Brenton's assessment was $1,288,000. Excluding this one-time assessment, noninterest expense would have actually decreased by .5 percent. Salaries and wages, the largest component of noninterest expense, increased $2,645,244 or 11.6 percent over 1995. This increase is primarily related to commissions paid on higher sales of fee-related products, expense tied to a stock performance plan and severance costs. Fixed salaries, those that are not based on commissions, actually decreased by 6.6 percent. The number of full-time equivalent employees decreased by 3.8 percent and 13.6 percent at December 31, 1996 and 1995, respectively. The total increase in salaries and wages led to a proportionate increase in employee benefits. Several new facilities and remodeling projects were completed in the past two years, which explain the combined increase in the categories of occupancy and furniture and equipment expense. Occupancy expense totaled $5,502,904 for 1996, compared to $4,912,417 for 1995. Increases within the occupancy category were associated with rents, leases and depreciation expense related to these new facilities. Results for 1996 include the first full year of expense for these new facilities. Furniture and equipment expense actually decreased $21,871 from the prior year. Depreciation expense increased by $197,130 due to technology updates throughout the Company. Decreases in repairs and maintenance, and furniture and equipment rentals offset the increase in depreciation expense. The Company continues to focus on using technology to improve efficiency and provide better service to our customers. During 1996, 62.8 percent of the Company's capital expenditures were in the technology area. Data processing expense totaled $2,591,485, an increase of 8.9 percent compared to 1995. This increase is related to new data servicing contracts in 1996 for mortgage loan processing and personal computer network maintenance and support. The expense associated with core main frame processing actually decreased which offset the cost of the new contracts. Expense related to the FDIC deposit assessments increased 1.0 percent in 1996 to $1,801,646, which includes the previously discussed one-time $1,288,000 assessment to fully fund SAIF. This assessment related to the deposits insured by SAIF, which represented approximately 16.4 percent of the Company's total deposits at the end of 1996. The Company continues to pay the lowest premiums available under the FDIC's risk-based premium system. Other operating expenses decreased $2.6 million or 21.2 percent when comparing 1996 results to 1995. This decline is the result of benefits derived in 1996 from the 1995 merger of the Company's 13 commercial banks into one bank charter, cost control measures and one time costs incurred in 1995. The Company continues to focus on cost management and evaluates all major expense items in an effort to control the growth rate of noninterest expenses. Income Taxes The Company's income tax strategies include reducing income taxes by purchasing securities and originating loans that produce tax-exempt income. The goal is to maintain the maximum level of tax-exempt assets in order to benefit the Company on both a tax- equivalent yield basis and in income tax savings. The effective rate of income tax expense as a percent of income before income tax and minority interest was 28.3 percent for 1996 compared to 22.5 percent for 1995. Results of Operations - 1995 Compared to 1994 Net Income For the year ended December 31, 1995, Brenton recorded net income of $10,407,354. Earnings per common share were $1.34 compared to $1.27 for 1994. The Company's total assets were consistent with 1994 levels of $1.6 billion on December 31, 1995. Return on average assets (ROA) was .71 percent in 1995, compared to .70 percent in 1994. The return on average equity (ROE) was 9.04 percent, compared to 9.03 percent one year earlier. Net Interest Income Net interest income declined $2,118,383 or 3.8 percent to $53,332,143 for 1995. Although average earning assets increased 1.3 percent from 1994, average interest-bearing liabilities increased 2.7 percent. In addition, the average rate earned on earning assets rose 55 basis points, while the average rate paid on interest-bearing liabilities increased 83 basis points. The net interest spread fell to 3.41 percent in 1995 from 3.69 percent in 1994. Net interest margin declined 23 basis points in 1995 and averaged 3.89 percent, compared to 4.12 percent in 1994. Loan Quality Brenton's loan quality remained strong in 1995. The Company's nonperforming loans were a low .62 percent of loans or $5,619,000 at December 31, 1995, up from $5,022,000 and .52 percent from one year earlier. The increase in nonperforming loans from one year ago was due to an increase in commercial and consumer loans that were 90 days or more past due. Nonaccrual and renegotiated loans are below 1994 levels. The allowance for loan losses, which totaled $11.1 million, represented 197.01 percent of nonperforming loans at the end of 1995, compared to 217.3 percent for 1994. The provision for loan losses totaled $1,864,801 for the year ended December 31, 1995, compared to $1,987,909 for 1994. The Company's net charge-offs to average loans were .18 percent for 1995 compared to .10 percent for 1994. Beginning January 1, 1995, the Financial Accounting Standards Boards mandated a standard that changed certain accounting procedures for impaired loans, including the determination of the allowance for loan losses and financial disclosures. This new Standard has not had a material effect on the financial statements of the Company. Noninterest Income For 1995, total noninterest income (excluding securities transactions) increased 5.4 percent to $17,849,743 from $16,932,612 one year earlier. Noninterest income (excluding securities gains and losses) for 1995 represented 1.14 percent of average assets and 33.47 percent of total operating income. Increases were seen in substantially all noninterest income categories. Service charges on deposit accounts rose 2.3 percent in 1995, compared to one year earlier. This increase occurred in the fourth quarter of 1995, when the Company implemented standardized service charges and initiatives to reduce the amount of waived charges and fees. Insurance commissions and fees increased 10.6 percent to $2,339,817 in 1995 primarily due to higher sales of both credit- related insurance and insurance agency operations. Fiduciary income rose 12.2 percent to $2,425,105 in 1995 compared to $2,160,492 in 1994. This increase was due to a growing customer base in the areas of personal trusts, investment management, employee benefit plans and the Brenton Family of Mutual Funds. Securities transactions produced an additional increase in noninterest income. Securities losses for 1995 totaled $3,003 compared to 1994 losses of $339,624. Offsetting the overall increase in noninterest income was a 20.6 percent decline in other operating income. The major cause for the decline was $232,454 of net losses on the sale of loans in 1995 compared to 1994 gains of $167,519. Noninterest Expense Total noninterest expense decreased 2.8 percent in 1995 to $55,051,267 from $56,656,922 one year ago. Included in 1994 expense was a one-time restructuring charge of $2,645,000. The restructuring charge was taken to cover costs related to the Company's strategic plan that included consolidating the Company's 13 commercial banks, reducing Brenton's overall personnel levels and closing selected banking branches. A summary of the estimated costs expensed in 1994 and the actual costs incurred in 1995 follows:
1994 Estimated 1995 Actual Costs Costs Salaries and wages $1,089,000 $ 565,263 Employee benefits 289,000 83,409 Occupancy expense 192,000 -- Data processing expense 527,500 389,432 Abandonment losses 267,000 164,945 Legal, regulatory and other 280,500 409,085 _________ _________ $2,645,000 $1,612,134 _________ _________ _________ _________
The difference between the estimated costs recorded in 1994 and the actual costs incurred was reversed, thereby reducing or crediting the above expense categories in 1995. The major restructuring charge reversals occurred in salaries and wages and employee benefit categories. These actual costs were well below original estimates due to employee attrition, which assisted in meeting necessary salary reductions without incurring severance costs. In addition, occupancy costs and abandonment losses were lower than original estimates, due to a planned branch closing that was estimated for 1995, but did not occur until 1996. Another branch which was expected to be abandoned was sold, with the Company incurring no loss. Salary expense declined approximately $710,000 from one year ago after eliminating the effects of the restructuring charge, due to overall staff reductions. The number of full-time equivalent employees decreased by 13.6 percent when comparing year-end 1995 personnel levels to year-end 1994. The decrease in salaries was offset by increases in incentives, insurance sales commissions and stock compensation plan expenses. The reductions in salaries and wages led to a proportionate decline in employee benefits. The increases in occupancy and furniture and equipment expense were due primarily to rents and depreciation for new and renovated banking offices in Ames, Ankeny, Cedar Rapids, Davenport and Iowa City. The Company invested approximately $7 million in these new facilities. Data processing expenses were unchanged from last year after eliminating the impact of the restructuring charge. Advertising and promotion expenses were also unchanged from one year earlier. In September 1995, the FDIC refunded assessments retroactively to May 1995 and lowered deposit insurance premiums for all well- capitalized banks. This was a result of the full funding of reserves required by the FDIC to insure the deposits of the banking industry. This reduced 1995 expenses by $1,124,169, in comparison to 1994. Other operating expenses rose $2.5 million or 22.6 percent after eliminating the impact of the restructuring charge. A large part of this increase relates to payments made to EDS, a management consulting firm that was hired to re-engineer the retail and commercial banking process and assist in developing a formalized program for enhancing noninterest income. In addition, the Company has contracted with other consultants to perform sales training and develop management reporting systems. Income Taxes The Company's income tax strategies include reducing income taxes by purchasing securities and originating loans that produce tax-exempt income. The effective rate of income tax expense as a percent of income before income tax and minority interest was 22.5 percent for 1995 compared to 20.2 percent for 1994. In 1994, the Company established out-of-state investment subsidiaries to manage the investment portfolios of each Brenton bank. These subsidiaries provided an opportunity to lower the amount of state franchise taxes paid by the Company. Effective July 1, 1995, the state of Iowa enacted legislation that eliminated the tax benefits derived from these subsidiaries. The Company dissolved these subsidiaries on June 30, 1995.
BRENTON BANKS, INC. AND SUBSIDIARIES CONSOLIDATED AVERAGE BALANCES AND RATES Average Balances (In thousands) 1996 1995 1994 1993 1992 Assets: Cash and due from banks $ 65,439 57,138 46,301 46,025 41,715 Interest-bearing deposits with banks 1,393 1,076 124 762 6,240 Federal funds sold and securities purchased under agreements to resell 26,188 39,763 37,666 23,725 27,082 Trading account securities --- --- 116 --- --- Investment securities: Available for sale-taxable 330,002 244,786 245,913 53,174 6,512 Available for sale-tax-exempt 85,471 100,859 132,040 --- --- Held to maturity-taxable 46,271 65,959 35,794 299,993 384,301 Held to maturity-tax-exempt 51,639 50,235 44,584 164,520 139,296 Loans held for sale 7,983 5,908 2,575 6,165 2,553 Loans 919,578 945,724 936,370 802,088 736,646 Allowance for loan losses (11,440) (11,166) (10,502) (9,615) (8,894) Premises and equipment 31,728 31,436 24,545 23,045 21,400 Other 28,642 29,508 25,663 26,543 30,422 __________ _________ _________ _________ _________ $ 1,582,894 1,561,226 1,521,189 1,436,425 1,387,273 Liabilities and Stockholders' Equity: Deposits Noninterest-bearing $ 131,051 128,770 127,464 119,322 112,054 Interest-bearing: Demand 376,259 355,819 250,520 217,754 209,642 Savings 241,250 231,633 294,715 299,640 260,568 Time 583,508 626,497 625,981 622,789 646,261 __________ _________ _________ _________ _________ Total deposits 1,332,068 1,342,719 1,298,680 1,259,505 1,228,525 Federal funds purchased and securities sold under agreements to repurchase 59,276 40,237 61,656 42,715 33,240 Other short-term borrowings 17,295 6,536 4,860 33 2,170 Accrued expenses and other liabilities 17,520 14,896 13,254 12,805 13,735 Long-term borrowings 33,094 37,264 26,500 14,077 14,067 __________ _________ _________ _________ _________ Total liabilities 1,459,253 1,441,652 1,404,950 1,329,135 1,291,737 Minority interest 4,471 4,391 4,290 4,150 3,845 Common stockholders' equity 119,170 115,183 111,949 103,140 91,691 __________ _________ _________ _________ _________ $ 1,582,894 1,561,226 1,521,189 1,436,425 1,387,273 Summary of Average Interest Rates Average rates earned: Interest-bearing deposits with banks 4.87% 6.20 6.65 2.88 4.92 Trading account securities --- --- --- 6.36 --- Federal funds sold and securities purchased under agreements to resell 5.41 5.69 4.53 2.05 2.41 Investment securities: Available for sale-taxable 6.08 5.96 5.30 5.28 6.63 Available for sale-tax exempt (tax equivalent basis) 7.13 6.71 6.37 --- --- Held to maturity-taxable 6.22 6.17 5.20 5.54 6.88 Held to maturity-tax-exempt (tax equivalent basis) 6.68 8.05 7.70 6.97 7.66 Loans held for sale 8.47 6.71 7.50 8.43 9.33 Loans 8.69 8.69 8.14 8.77 9.65 Average rates paid: Deposits 4.12% 4.37 3.55 3.70 4.70 Federal funds purchased and securities sold under agreements to repurchase 4.17 4.08 3.38 2.41 2.78 Other short-term borrowings 5.87 5.67 5.42 3.63 5.57 Long-term borrowings 7.07 7.03 6.86 8.60 9.14 Average yield on interest-earning assets 7.80% 7.86 7.31 7.57 8.43 Average rate paid on interest- bearing liabilities 4.22 4.45 3.62 3.71 4.70 Net interest spread 3.58 3.41 3.69 3.86 3.73 Net interest margin 4.03 3.89 4.12 4.28 4.23
BRENTON BANKS, INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA Year-end Balances (In thousands) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 Total assets $1,632,095 1,582,779 1,581,327 1,480,596 1,431,140 1,360,942 1,274,301 961,370 921,207 908,933 Interest-earning assets 1,497,600 1,461,218 475,473 1,400,709 1,323,252 1,267,402 1,181,172 883,721 845,571 836,029 Interest-bearing liabilities 1,335,609 1,300,508 1,315,378 1,224,951 1,181,013 1,141,008 1,052,597 769,717 733,133 728,597 Demand deposits 153,284 143,220 136,548 127,132 137,212 115,479 125,626 113,349 118,392 116,830 Long-term borrowings 34,860 38,178 28,939 20,055 13,284 13,634 12,675 14,701 16,215 17,509 Preferred stock --- --- --- --- --- --- --- --- --- 2,000 Common stockholders' equity** 121,954 119,534 110,430 112,418 97,430 86,712 77,258 63,522 56,401 49,618 Results of operations (In thousands) Interest income $ 111,383 111,040 101,223 98,656 106,560 115,561 106,826 85,722 76,745 74,774 Interest expense 55,331 57,708 45,772 44,427 54,773 68,687 64,431 49,102 43,180 43,149 Net interest income 56,052 53,332 55,451 54,229 51,787 46,874 42,395 36,620 33,565 31,625 Provision for loan losses 2,900 1,865 1,988 1,252 1,411 799 869 760 1,214 2,132 Net interest income after provision for loan losses 53,152 51,467 53,463 52,977 50,376 46,075 41,526 35,860 32,351 29,493 Noninterest income 23,327 17,847 16,593 17,863 14,684 12,715 11,554 10,113 10,367 9,064 Noninterest expense 56,090 55,051 56,657 50,415 46,591 42,284 37,820 32,781 32,066 32,952 Income before income taxes and minority interest 20,389 14,263 13,399 20,425 18,469 16,506 15,260 13,192 10,652 5,605 Income taxes 5,771 3,205 2,701 5,508 4,884 4,308 4,388 4,016 2,527 408 Minority interest 603 651 591 667 632 539 533 472 422 290 Net income 14,015 10,407 10,107 14,250 12,953 11,659 10,339 8,704 7,703 4,907 Preferred stock dividend requirement --- --- --- --- --- --- --- --- 81 265 Net income available to common stockholders $ 14,015 10,407 10,107 14,250 12,953 11,659 10,339 8,704 7,622 4,642 Average common shares outstanding (In thousands)* 8,312 8,528 8,747 8,711 8,561 8,534 8,520 7,916 7,916 7,916 Per common and common equivalent share* Net income $ 1.69 1.22 1.15 1.64 1.52 1.36 1.21 1.10 .96 .59 Cash dividends .454 .409 .400 .364 .318 .294 .248 .200 .106 .000 Common stockholders' equity*** 14.95 14.04 13.35 12.62 11.34 10.15 9.06 8.03 7.13 6.26 Selected operating ratios Return on average assets (including minority interest) .92% .71 .70 1.04 .98 .93 .95 1.00 .90 .57 Return on average common stockholders' equity 11.76 9.04 9.03 13.82 14.13 14.27 14.39 14.50 14.34 9.78 Equity to assets*** 7.41 7.47 7.28 7.40 6.81 6.37 6.06 6.61 6.12 5.46 Common dividend payout 26.86 33.58 34.65 22.22 21.00 21.56 20.50 18.23 11.01 .00 Allowance for loan losses as a percent of loans 1.20 1.22 1.12 1.12 1.20 1.14 1.25 1.55 1.60 1.75 Net charge-offs to average loans outstanding .29 .18 .10 .05 .13 .15 .12 .08 .18 .75 * Restated for 10% common stock dividend effective in 1996, 3-for-2 stock split effective in 1994 and 2-for-1 stock split effective in 1990. ** Including unrealized gains (losses) on securities available for sale. *** Excluding unrealized gains (losses) on securities available for sale
BRENTON BANKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION December 31 1996 1995 Assets: Cash and due from banks (note 2) $ 76,900,524 71,159,078 Interest-bearing deposits with banks 731,554 265,072 Federal funds sold and securities purchased under agreements to resell 15,200,000 37,600,000 Investment securities: Available for sale (note 3) 461,099,272 396,370,443 Held to maturity (market value of $73,316,000 and $109,131,000 at December 31, 1996 and 1995, respectively (note 3) 72,754,985 108,082,213 Investment securities 533,854,257 504,452,656 Loans held for sale 5,870,298 8,707,309 Loans (notes 4, 9 and 10) 941,943,513 910,193,212 Allowance for loan losses (note 5) (11,328,359) (11,069,869) Loans, net 930,615,154 899,123,343 Premises and equipment (notes 6 and 10) 30,379,446 32,849,842 Accrued interest receivable 14,417,786 14,494,261 Other assets (note 8) 24,126,063 14,127,759 $ 1,632,095,082 1,582,779,320 Liabilities and Stockholders' Equity: Deposits (note 7): Noninterest-bearing $ 153,284,094 143,220,373 Interest-bearing: Demand 99,277,477 399,308,392 Savings 527,791,360 215,488,846 Time 572,704,180 603,925,104 Total deposits 1,353,057,111 1,361,942,715 Federal funds purchased and securities sold under agreements to repurchase 66,826,120 41,107,411 Other short-term borrowings (note 9) 34,150,000 2,500,000 Accrued expenses and other liabilities 16,633,068 15,083,453 Long-term borrowings (note 10) 34,860,024 38,177,803 Total liabilities 1,505,526,323 1,458,811,382 Minority interest in consolidated subsidiaries 4,614,530 4,434,307 Redeemable preferred stock, $1 par; 500,000 shares authorized; issuable in series, none issued --- --- Common stockholders' equity (notes 12, 13, 14 and 16): Common stock, $5 par; 25,000,000 shares authorized; 8,085,684 and 7,653,252 shares issued and outstanding at December 31, 1996 and 1995, respectively 40,428,420 38,266,260 Capital surplus --- 2,020,518 Retained earnings 80,448,768 77,888,451 Unrealized gains on securities available for sale 1,077,041 1,358,402 Total common stockholders' equity 121,954,229 119,533,631 $ 1,632,095,082 1,582,779,320 Commitments and contingencies (notes 17 and 18). See accompanying notes to consolidated financial statements.
BRENTON BANKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31 1996 1995 1994 Interest Income: Interest and fees on loans (note 4) $ 80,301,707 82,525,850 76,456,964 Interest and dividends on investments: Available for sale-taxable 20,063,114 14,577,652 13,032,050 Available for sale-tax-exempt 4,250,463 4,446,824 5,530,626 Held to maturity-taxable 2,878,982 4,069,617 1,862,628 Held to maturity-tax-exempt 2,404,155 3,090,185 2,619,333 Interest on federal funds sold and securities purchased under agreements to resell 1,416,539 2,263,734 1,705,717 Other interest income 68,157 66,705 15,636 ___________ ___________ ___________ Total interest income 111,383,117 111,040,567 101,222,954 Interest Expense: Interest on deposits (note 7) 49,507,425 53,075,352 41,609,766 Interest on federal funds purchased and securities sold under agreements to repurchase 2,469,939 1,641,516 2,082,077 Interest on other short-term borrowings (note 9) 1,015,110 370,642 263,658 Interest on long-term borrowings (note 10) 2,338,501 2,620,914 1,816,927 ___________ ___________ ___________ Total interest expense 55,330,975 57,708,424 45,772,428 Net interest income 56,052,142 53,332,143 55,450,526 Provision for loan losses (note 5) 2,900,000 1,864,801 1,987,909 ___________ ___________ ___________ Net interest income after provision for loan losses 53,152,142 51,467,342 53,462,617 Noninterest Income: Service charges on deposit accounts 6,712,874 5,547,796 5,424,547 Investment brokerage commissions 3,766,436 3,044,107 2,879,401 Insurance commissions and fees 2,915,666 2,339,817 2,115,085 Fiduciary income 2,744,530 2,425,105 2,160,492 Mortgage banking income 2,168,593 1,427,342 1,216,690 Other service charges, collection and exchange charges, commissions and fees 2,779,502 2,435,132 2,342,210 Net gains (losses) from securities available for sale (note 3) 321,256 (3,003) (339,624) Other operating income 1,918,584 630,444 794,187 ___________ ___________ ___________ Total noninterest income 23,327,441 17,846,740 16,592,988 Noninterest Expense: Salaries and wages 25,460,464 22,815,220 24,595,274 Employee benefits (note 15) 4,245,682 4,158,580 4,960,665 Occupancy expense of premises, net (notes 6 and 17) 5,502,904 4,912,417 4,702,208 Furniture and equipment expense (notes 6 and 17) 3,725,150 3,747,021 3,060,557 Data processing expense (note 18) 2,591,485 2,379,920 3,083,819 FDIC deposit insurance assessment 1,801,646 1,783,213 2,907,382 Advertising and promotion 1,756,473 1,741,390 1,772,852 Supplies 1,409,690 1,326,928 1,386,639 Other operating expense 9,597,077 12,186,578 10,187,526 ___________ ___________ ___________ Total noninterest expense 56,090,571 55,051,267 56,656,922 Income before income taxes and minority interest 20,389,012 14,262,815 13,398,683 Income taxes (note 8) 5,770,600 3,204,687 2,700,640 ___________ ___________ ___________ Income before minority interest 14,618,412 11,058,128 10,698,043 Minority interest 602,982 650,774 590,656 ___________ ___________ ___________ Net income $ 14,015,430 10,407,354 10,107,387 Per common and common equivalent share (note 13): Net income $ 1.69 1.22 1.15 Cash dividends .454 .409 .400 See accompanying notes to consolidated financial statements.
BRENTON BANKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW Years Ended December 31 1996 1995 1994 Operating Activities: Net income $ 14,015,430 10,407,354 10,107,387 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 2,900,000 1,864,801 1,987,909 Depreciation and amortization 4,301,776 4,097,022 3,387,034 Deferred income taxes 949,396 (25,181) (1,257,325) Net (gains) losses from securities available for sale (321,256) 3,003 339,624 Net (increase) decrease in loans held for sale 2,837,011 (6,602,817) 2,244,930 Increase in accrued interest receivable and other assets (11,420,210) (1,678,132) (1,477,154) Increase in accrued expenses, other liabilities and minority interest 1,735,569 322,324 3,192,432 _____________ ____________ ____________ Net cash provided by operating activities 14,997,716 8,388,374 18,524,837 Investing Activities: Investment securities available for sale: Purchases (289,895,560) (242,871,379) (122,339,026) Maturities 150,480,123 278,575,538 154,659,319 Sales 67,547,581 5,577,835 21,484,178 Investment securities held to maturity: Purchases (45,046,248) (121,543,300) (59,384,073) Maturities 79,614,914 59,896,255 26,687,613 Net (increase) decrease in loans (26,364,596) 28,502,974 (95,225,841) Purchases of premises and equipment (2,734,491) (9,733,181) (6,920,455) Proceeds from sales of premises and equipment 1,356,634 360,470 26,578 _____________ ____________ ____________ Net cash used by investing activities (65,041,643) (1,234,788) (81,011,707) Financing Activities: Net increase in noninterest-bearing, interest-bearing demand and savings deposits 22,335,320 51,054,199 40,210,540 Net increase (decrease) in time deposits (31,220,924) (29,394,594) 5,708,876 Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase 25,718,709 (29,596,325) 33,039,408 Net increase (decrease) in other short-term borrowings 15,500,000 (9,500,000) 12,000,000 Proceeds of long-term borrowings 14,604,000 12,429,000 22,176,030 Repayment of long-term borrowings (1,771,779) (3,190,610) (13,291,530) Dividends on common stock (3,748,653) (3,498,220) (3,471,901) Proceeds from issuance of common stock under the employee stock purchase plan 71,675 --- --- Proceeds from issuance of common stock under the stock option plan 290,748 187,213 385,767 Proceeds from issuance of common stock under the long-term stock compensation plan 334,834 361,602 --- Payment for shares acquired under common stock repurchase plan (8,248,331) (4,830,111) (850,950) Payment for fractional shares resulting from stock dividend (13,744) --- (4,307) _____________ ____________ ____________ Net cash provided (used) by financing activities 33,851,855 (15,977,846) 95,901,933 _____________ ____________ ____________ Net increase (decrease) in cash and cash equivalents (16,192,072) (8,824,260) 33,415,063 Cash and cash equivalents at the beginning of the year 109,024,150 117,848,410 84,433,347 _____________ ____________ ____________ Cash and cash equivalents at the end of the year $ 92,832,078 109,024,150 117,848,410 See accompanying notes to consolidated financial statements.
BRENTON BANKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY Common Capital Retained Unrealized Stock Surplus Earnings Gains (Losses) Total Balance, December 31, 1993 $26,265,755 5,598,027 77,517,613 3,036,270 112,417,665 Net income --- --- 10,107,387 --- 10,107,387 Net change in unrealized gains (losses) --- --- --- (8,153,316) (8,153,316) Dividends on common stock $.400 per share* --- --- (3,471,901) --- (3,471,901) 3-for-2 stock split in the form of a stock dividend (note 13) 13,169,475 --- (13,169,475) --- --- Fractional shares resulting from stock split --- --- (4,307) --- (4,307) Issuance of shares of common stock under the stock option plan (note 16) 146,500 239,267 --- --- 385,767 Shares reacquired under stock repurchase plan (note 13) (224,000) (626,950) --- --- (850,950) Balance, December 31, 1994 39,357,730 5,210,344 70,979,317 (5,117,046) 110,430,345 Net income --- --- 10,407,354 --- 10,407,354 Net change in unrealized gains (losses) --- --- --- 6,475,448 6,475,448 Dividends on common stock $.409 per share** --- --- (3,498,220) --- (3,498,220) Issuance of shares of common stock under the stock option plan (note 16) 98,750 88,463 --- --- 187,213 Issuance of shares of common stock under the stock compensation plan (note 16) 100,445 261,157 --- --- 361,602 Shares reacquired under stock repurchase plan (note 13) (1,290,665) (3,539,446) --- --- (4,830,111) Balance, December 31, 1995 38,266,260 2,020,518 77,888,451 1,358,402 119,533,631 Net income --- --- 14,015,430 --- 14,015,430 Net change in unrealized gains (losses) --- --- --- (281,361) (281,361) Dividends on common stock $.454 per share** --- --- (3,748,653) --- (3,748,653) 10% common stock dividend (note 13) 3,684,215 --- (3,684,215) --- --- Fractional shares resulting from stock dividend --- --- (13,744) --- (13,744) Issuance of shares of common stock under the stock option plan (note 16) 128,000 162,748 --- --- 290,748 Issuance of shares of common stock under the stock compensation plan (note 16) 73,590 261,244 --- --- 334,834 Issuance of shares of common stock under the employee stock purchase plan (note 16) 14,855 56,820 --- --- 71,675 Shares reacquired under stock repurchase plan (note 13) (1,738,500) (2,501,330) (4,008,501) --- (8,248,331) Balance, December 31, 1996 $40,428,420 --- 80,448,768 1,077,041 121,954,229 * Reflects the 10% common stock dividend effective in 1996 and the 3-for-2 stock split effective in 1994. ** Reflects the 10% common stock dividend effective in 1996. See accompanying notes to consolidated financial statements.
BRENTON BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (1) Summary of Significant Accounting Policies and Related Matters Nature of Operations Brenton Banks, Inc. and subsidiaries (the Company) engage in retail, commercial, and agricultural banking and related financial services from 45 locations throughout the state of Iowa. The Company provides the usual products and services of banking such as deposits, commercial loans, agribusiness loans, personal loans and trust services. The Company also engages in activities that are closely related to banking, including mortgage banking, insurance and investment brokerage. The accounting and reporting policies of the Company conform with generally accepted accounting principles and general practices within the banking industry. The following describe the more significant accounting policies: The Principles of Consolidation The consolidated financial statements include the accounts of Brenton Banks, Inc. (the Parent Company) and its subsidiaries. All material intercompany accounts and transactions have been eliminated in the consolidated financial statements. Certain reclassifications were made in the financial statements to agree with the current year presentation. The excess cost over underlying net assets of consolidated subsidiaries and other intangible assets are being amortized over 10 to 40 years and are included in other assets in the consolidated statements of condition. Intangible assets totaled $4,696,000 and $5,023,000 at December 31, 1996, and 1995, respectively. Investment Securities Investment securities are classified based on the Company's intended holding period. Securities, which may be sold prior to maturity to meet liquidity needs, to respond to market changes or to adjust the Company's asset-liability position, are classified as available for sale. Securities which the Company intends to hold to maturity are classified as held to maturity. Investment securities available for sale are recorded at fair value. The aggregate unrealized gains or losses, net of the income tax and minority interest effect, are recorded as a component of common stockholders' equity. Securities held to maturity are recorded at cost, adjusted for amortization of premiums and accretion of discounts. The timing of the amortization and accretion of mortgage-backed securities are adjusted for actual and projected prepayments. Net gains or losses on the sale of securities are shown in the statements of operations. Gains or losses are computed using the specific security identification method. Loans Loans are carried primarily at the unpaid principal balance. Interest income on loans is accrued and recorded as income based on contractual interest rates and daily outstanding principal balances, except on discounted loans where unearned income is recorded as income over the life of the loans based on the interest method. The accrual of interest income is stopped when the ultimate collection of a loan becomes doubtful. A loan is placed on nonaccrual status when it becomes 90 days past due, if it is neither well secured or in the process of collection. Once determined uncollectible, previously accrued interest is charged to the allowance for loan losses. Loans held for sale include real estate mortgage loans originated with the intent to sell. These loans are carried at the lower of aggregate cost or fair value. Allowance for Loan Losses The allowance for loan losses is maintained at a level necessary to support management's evaluation of potential losses in the loan portfolio, after considering various factors including prevailing and anticipated economic conditions. Loan losses or recoveries are charged or credited directly to the allowance account. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Depreciation is provided predominantly by the straight-line method over estimated useful lives of 8 to 40 years for buildings and leasehold improvements, and 3 to 25 years for furniture and equipment. Other Real Estate Owned Included in other assets is property acquired through foreclosure, acceptance of deed in lieu of foreclosure or other transfers in settlement of outstanding loans and related contract sales of such property until the contract is transferred to earning assets based upon sufficient equity in the asset. Amounts totaled $488,000 and $869,000 at December 31, 1996, and 1995, respectively. Such property is carried at the lower of cost or estimated fair value, less selling costs. Periodic appraisals are obtained to support carrying values. Net expense of ownership and declines in carrying values are charged to operating expenses. Employee Retirement Plan All employees of the Company are eligible, after meeting certain requirements, for inclusion in the defined contribution retirement plan. The plan is a combination profit sharing and 401(k) plan. Retirement plan costs are expensed as the Company contributes to the plan. The Company does not provide any material post-retirement benefits. Income Taxes The Company files a consolidated federal income tax return. Federal income taxes are allocated to the Parent Company and each subsidiary on the basis of its taxable income or loss included in the consolidated return. The effects of current or deferred taxes are recognized as a current and deferred tax liability or asset based on current tax laws. Accordingly, income tax expense in the consolidated statements of operations includes charges or credits to properly reflect the current and deferred tax asset or liability. Statements of Cash Flows In the statements of cash flows, cash and cash equivalents include cash and due from banks, interest- bearing deposits with banks, federal funds sold and securities purchased under agreements to resell and trading accounting securities. Income Per Common and Common Equivalent Share Income per common and common equivalent share computations are based on the weighted average number of common and common stock equivalent shares outstanding. In October 1996, the Company declared a 10 percent common stock dividend and in May 1994, the Company declared a 3-for-2 stock split in the form of a stock dividend. The average number of shares, after considering stock plans and the stock dividends, was 8,312,420 for 1996, 8,528,153 for 1995 and 8,747,053 for 1994. Fair Value of Financial Instruments Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering the Company's entire holdings of a particular financial instrument for sale at one time. Unless included in assets available for sale, it is the Company's general practice and intent to hold its financial instruments to maturity and not to engage in trading or sales activities. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Estimated fair values have been determined by the Company using the best available data and an estimation method suitable for each category of financial instruments. Interest Rate Swaps Amounts paid or received, related to outstanding swap contracts that are used in the asset/liability management process, are recognized into earnings as an adjustment to interest income over the estimated life of the related assets. Gains or losses associated with the termination of interest rate swap agreements for identified positions are deferred and amortized over the remaining lives of the related assets as an adjustment to yield. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A significant estimate that is particularly sensitive to change relates to the allowance for loan losses. Changes in Accounting Policies: Accounting by Creditors for Impairment of a Loan Effective January 1, 1995, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," and its amendment SFAS No. 118 "Income Recognition and Disclosures." The allowance for loan losses is maintained at a level considered appropriate to support management's evaluation of potential losses in the loan portfolio. Management's evaluation is based upon several factors including economic conditions, historical loss and collection experience, risk characteristics of the portfolio, underlying collateral values, industry risk and credit concentrations. Under the Company's credit policies, all nonaccrual and restructured commercial, agricultural, commercial real estate and construction loans are considered to meet the definition of impaired loans under SFAS 114 and 118. In determining when a loan is impaired, management considers the delinquency status of the borrower, the borrower's ability to generate cash and the fair market value of the collateral. Specific allowances are established for any impaired commercial, agricultural, commercial real estate or construction loan where the recorded investment exceeds the measured value of the loan. On a practical basis, the measured value of a loan is obtained by using the observable market price of a loan or the fair value of the collateral, if the loan is collateral dependent. Otherwise, the measured value of a loan is based upon the present value of expected future cash flows discounted at the loan's effective interest rate. Impaired loans are charged-off on the basis of management's ongoing evaluation, but generally when it is deemed probable that the borrower cannot generate sufficient funds to comply with contractual terms in the normal course of business. Cash received on impaired loans is applied to principal until principal is satisfied or until the borrower demonstrates the ability to perform according to agreed-upon terms. SFAS 114 and 118 do not apply to smaller balance, homogeneous loans which the Company has identified as loans to consumers, such as home equity, installment and 1-4 family residential loans. Delinquency status is used to identify risks within the various consumer loan portfolios. Consumer loans are generally charged-off when such loans are deemed to be uncollectible or 90 days past due, whichever occurs first. Accounting for Mortgage Servicing Rights Effective October 1, 1995, the Company adopted SFAS No. 122, "Accounting for Mortgage Servicing Rights." This statement requires capitalization of purchased mortgage servicing rights as well as internally originated mortgage servicing rights. These mortgage servicing rights are amortized over the estimated servicing period of the related loans. Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset is not recoverable. The adoption of SFAS No. 121 did not have a material effect on the Company. Accounting for Stock-Based Compensation Prior to January 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As such, compensation expense would be recorded on the date of the grant only if the current market price of the underlying stock exceeded the exercise price. Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. (2) Cash and Due From Banks The subsidiary banks are required by federal banking regulations to maintain certain cash and due from banks reserves. This reserve requirement amounted to $5,538,000 at December 31, 1996. (3) Investment Securities The amortized cost and estimated fair value of investment securities follow. The estimated fair value of investment securities has been determined using available quoted market prices for similar securities.
Gross Gross Estimated Amortized Unrealized Unrealized Fair December 31, 1996 (In thousands) Cost Gains Losses Value Investment securities available for sale: Taxable investments: U.S. Treasury securities $ 41,330 76 (55) 41,351 Securities of U.S. government agencies 98,357 143 (347) 98,153 Mortgage-backed and related securities 218,865 1,398 (816) 219,447 Other investments 8,213 --- (20) 8,193 Tax-exempt investments: Obligations of states and political subdivisions 92,519 1,606 (170) 93,955 _______ _____ _____ $459,284 3,223 (1,408) 461,099 Investment securities held to maturity: Taxable investments: Securities of U.S. government agencies $ 15,065 63 (112) 15,016 Mortgage-backed and related securities 3,041 72 --- 3,113 Other investments 2,466 15 (6) 2,475 Tax-exempt investments: Obligations of states and political subdivisions 52,183 681 (152) 52,712 _______ _____ _____ ______ $ 72,755 831 (270) 73,316 December 31, 1995 Investment securities available for sale: Taxable investments: U.S. Treasury securities $ 27,621 161 (7) 27,775 Securities of U.S. government agencies 72,705 214 (97) 72,822 Mortgage-backed and related securities 190,953 927 (852) 191,028 Other investments 9,089 (18) 9,071 Tax-exempt investments: Obligations of states and political subdivisions 94,014 1,893 (233) 95,674 _______ _____ _____ _______ $394,382 3,195 (1,207) 396,370 Investment securities held to maturity: Taxable investments: Securities of U.S. government agencies $ 48,595 375 (44) 48,926 Mortgage-backed and related securities 3,653 32 (2) 3,683 Other investments 6,145 25 (4) 6,166 Tax-exempt investments: Obligations of states and political subdivisions 49,689 794 (127) 50,356 _______ _____ _____ _______ $108,082 1,226 (177) 109,131
Proceeds from the sale of available for sale securities were $67,548,000, $5,578,000 and $21,484,000 in 1996, 1995 and 1994, respectively. Gross gains of $558,000 in 1996, $19,000 in 1995 and $68,000 in 1994 and gross losses of $237,000 in 1996, $22,000 in 1995 and $408,000 in 1994 were realized on those sales. Other investments at December 31, 1996 and 1995, consisted primarily of corporate bonds. U.S. government agencies originate or guarantee primarily all of the mortgage-backed and related securities. The amortized cost of obligations of states and political subdivisions included industrial development revenue bonds of $7,269,000 at December 31, 1995. Under provisions of the Financial Accounting Standards Board Special Report entitled "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities," the Company transferred securities with amortized costs of $48,049,000 in December 1995 from held to maturity to available for sale. Unrealized gains related to such securities transferred were $315,000. The scheduled maturities of investment securities at December 31, 1996 follow. Actual maturities may differ from scheduled maturities because issuers may have the right to call obligations without penalties. The maturities of mortgage-backed securities have been included in the period of anticipated payment considering estimated prepayment rates.
Estimated Amortized Fair (In thousands) Cost Value Investment securities available for sale: Due in one year or less $130,194 130,310 Due after one year through five years 228,980 229,696 Due after five years through ten years 73,354 73,716 Due after ten years 26,756 27,377 $459,284 461,099 Investment securities held to maturity: Due in one year or less $ 22,244 22,264 Due after one year through five years 28,606 28,691 Due after five years through ten years 15,307 15,388 Due after ten years 6,598 6,973 $ 72,755 73,316
Investment securities carried at $246,552,000 and $163,418,000 at December 31, 1996 and 1995, respectively, were pledged to secure public and other funds on deposit and for other purposes. (4) Loans A summary of loans follows:
(In thousands) December 31, 1996 1995 Real estate loans: Commercial construction and land development $ 42,693 38,123 Secured by 1-4 family residential property 338,010 319,430 Other 150,395 163,739 Loans to farmer 69,660 68,543 Commercial and industrial loans 132,395 119,368 Loans to individuals for personal expenditures, net of unearned income of $59 and $313 at December 31, 1996 and 1995, respectively 207,197 199,489 All other loans 1,594 1,501 $941,944 910,193
The Company originates commercial, real estate, agribusiness and personal loans with customers throughout Iowa. The portfolio has unavoidable geographic risk as a result. Total non-performing loans and assets at December 31 were:
(In thousands) 1996 1995 Impaired loans and leases: Non-accrual $2,663 2,639 Restructured 568 178 Total impaired loans and leases 3,231 2,817 Loans and leases past due 90 days or more 2,936 2,802 Total non-performing loans 6,167 5,619 Other real estate owned 488 869 Total non-performing assets $6,655 6,488
The average balances of impaired loans for the years ended December 31, 1996 and 1995 were $3,378,000 and $3,353,000, respectively. The allowance for loan losses related to impaired loans at December 31, 1996 and 1995 was $481,000 and $425,000, respectively. Impaired loans of $456,000 and $384,000 were not subject to a related allowance for loan losses at December 31, 1996 and 1995, respectively, because of the net realizable value of loan collateral, guarantees and other factors. The effect of non-accrual and restructured loans on interest income for each of the three years ended December 31 was:
(In thousands) 1996 1995 1994 Interest income As originally contracted $363 418 537 As recognized 174 136 321 Reduction of interest income $189 282 216
Loan customers of the Company include certain executive officers, directors and principal shareholders, and their related interests and associates. All loans to this group were made in the ordinary course of business at prevailing terms and conditions. The aggregate indebtedness of all executive officers, directors and principal shareholders of Brenton Banks, Inc. and its significant subsidiaries, and indebtedness of related interests and associates of this group (except where the indebtedness of such persons was less than $60,000) included in loans follows:
(In thousands) Amount Balance at December 31, 1995 $ 4,824 Additional loans 2,488 Loan payments (1,475) Balance at December 31, 1996 $ 5,837
Mortgage Servicing Rights The fair market value of capitalized servicing rights at December 31, 1996 was approximately $1,145,000. To determine the fair value of the servicing rights, the Company used comparable market prices. There were no charges to the impairment account. In determining the fair market value and potential impairment at the end of 1996, the Company disaggregated the portfolio into its predominate risk factor; that being interest rate. The fair value of the portfolio was determined by calculating the present value of future cash flows. The Company incorporated assumptions that market participants would use in estimating future net servicing income which include estimates of the cost of servicing per loan, the discount rate, float value, an inflation rate, ancillary income per loan, prepayment speeds and default rates. Capitalized servicing rights on originated loan servicing is as follows:
(In thousands) 1996 1995 Beginning of year balance $ 252 --- Additions from Originations 962 266 Amortization (188) (14) Impairment --- --- Balance at end of year $1,026 252
(5) Allowance for Loan Losses A summary of activity in the allowance for loan losses follows:
(In thousands) 1996 1995 1994 Balance at beginning of year $11,070 10,913 9,818 Provision 2,900 1,865 1,988 Recoveries 1,419 1,669 1,549 Loans charged off (4,061) (3,377) (2,442) Balance at end of year $11,328 11,070 10,913
(6) Premises and Equipment A summary of premises and equipment follows:
(In thousands) December 31, 1996 1995 Land $ 2,952 3,614 Buildings and leasehold improvements 30,876 32,045 Furniture and equipment 23,463 21,756 Construction in progress 275 33 57,566 57,448 Less accumulated depreciation 27,187 24,598 $30,379 32,850
Depreciation expense included in operating expenses amounted to $3,848,000, $3,626,000 and $2,938,000 in 1996, 1995 and 1994, respectively. (7) Deposits Time deposits include deposits in denominations of $100,000 or more of $82,011,000 and $64,014,000 at December 31, 1996, and 1995, respectively. A summary of interest expense by deposit classification follows:
(In thousands) 1996 1995 1994 Demand $11,194 11,842 5,418 Savings 6,134 6,638 6,878 Time deposits of $100,000 or more 3,935 4,193 3,110 Other time deposits 28,244 30,402 26,204 $49,507 53,075 41,610
The Company made cash interest payments of $55,455,000, $55,229,000 and $46,850,000 on deposits and borrowings in 1996, 1995 and 1994, respectively. At December 31, 1996, the scheduled maturities of time deposits are as follows (in thousands): 1997 $335,530 1998 166,631 1999 42,068 2000 26,120 2001 and thereafter 2,355 $572,704 (8) Income Taxes The current and deferred income tax provisions included in the consolidated statements of operations follow:
1996 (In thousands) Current Deferred Total Federal $3,754 894 4,648 State 1,067 56 1,123 $4,821 950 5,771 1995 Federal $2,728 (76) 2,652 State 502 51 553 $3,230 (25) 3,205 1994 Federal $3,037 (1,099) 1,938 State 921 (158) 763 $3,958 (1,257) 2,701
Since the income tax returns are filed after the issuance of the financial statements, amounts reported are subject to revision based on actual amounts used in the income tax returns. The Company made cash income tax payments of $4,250,000, $2,500,000 and $2,671,000 to the IRS, and $435,000, $737,000 and $1,226,000 to the state of Iowa in 1996, 1995 and 1994, respectively. Cash income tax payments for a year include estimated payments for current year income taxes and final payments for prior year income taxes. State income tax expense relates to state franchise taxes payable individually by the subsidiary banks. The reasons for the difference between the amount computed by applying the statutory federal income tax rate of 35 percent in 1996 and 34 percent in 1995 and 1994, and income tax expense follow:
(In thousands) 1996 1995 1994 At statutory rate $ 7,136 4,849 4,556 Increase (reduction) due to: Tax-exempt interest (2,556) (2,566) (2,768) State taxes, net of federal benefit 730 365 503 Nondeductible interest expense to own tax-exempts 426 431 363 Other, net 35 126 47 $ 5,771 3,205 2,701
Accumulated deferred income tax assets are included in other assets in the consolidated statements of condition. There was no valuation allowance at December 31, 1996, or 1995. A summary of the temporary differences resulting in deferred income taxes and the related tax effect on each follows:
(In thousands) 1996 1995 Allowance for loan losses $3,962 3,985 Unrealized (gains) losses on securities available for sale (670) (694) Deposit base intangibles (315) (259) Premises and equipment (588) (452) Stock compensation plan 682 372 Real estate mortgage loan points deferred (300) (479) Alternative minimum tax credit carry-forward --- 442 Other, net (251) 531 $2,520 3,446
(9) Other Short-Term Borrowings The Company had short-term borrowings with the Federal Home Loan Bank of Des Moines (FHLB) totaling $34,150,000 and $2,500,000 at December 31, 1996, and 1995, respectively. The average rate on these borrowings at December 31, 1996 was 5.97 percent. These borrowings were secured by residential mortgage loans equal to 150 percent of the borrowings and FHLB stock. The Parent Company has arranged an unsecured line of credit of $2,000,000 which was unused at December 31, 1996. It is at the prime interest rate and is subject to annual review and renewal. (10) Long-Term Borrowings Long-term borrowings consisted of the following:
(In thousands) December 31, 1996 1995 Capital notes, 6.00% to 10.00% Total Parent Company $ 11,248 12,435 Borrowings from FHLB, average rate of 6.18% at December 31, 1996 23,550 25,650 Mortgage debt, average rate of 6.75% at December 31, 1996 62 93 $ 34,860 38,178
Mortgage debt was secured by real property with a carrying value of $77,000 at December 31, 1996. Borrowings from the FHLB were secured by residential mortgage loans equal to 150 percent of the borrowings and FHLB stock. The mortgage debt and borrowings from the FHLB were direct obligations of the individual subsidiaries. Scheduled maturities of long-term borrowings at December 31, 1996, follow:
Parent (In thousands) Company Consolidated 1997 $ 1,457 1,464 1998 1,097 15,105 1999 1,671 11,268 2000 853 853 2001 1,396 1,396 Thereafter 4,774 4,774 $11,248 34,860
(11) Fair Value of Financial Instruments The estimated fair values of the Company's financial instruments were as follows:
December 31, 1996 December 31, 1995 Recorded Fair Recorded Fair (In thousands) Amount Value Amount Value Financial assets: Cash and due from banks $ 76,901 76,901 71,159 71,159 Interest-bearing deposits with banks 732 732 265 265 Federal funds sold and securities purchased under agreements to resell 15,200 15,200 37,600 37,600 Investment securities 533,854 534,415 504,452 505,501 Loans held for sale 5,870 5,870 8,707 8,707 Loans, net 930,615 929,113 899,123 910,338 Financial liabilities: Deposits $ 1,353,057 1,360,457 1,361,943 1,367,680 Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings 100,976 100,976 43,607 43,607 Long-term borrowings 34,860 35,025 38,178 40,610 Off-balance-sheet assets (liabilities): Commitments to extend credit $ --- --- --- --- Letters of credit --- (59) --- (63) Interest rate swaps --- (69) --- (224)
The recorded amount of cash and due from banks and interest- bearing deposits with banks approximates fair value. The recorded amount of federal funds sold and securities purchased under agreements to resell approximates fair value as a result of the short-term nature of the instruments. The estimated fair value of investment securities has been determined using available quoted market prices for similar securities. The estimated fair value of loans is net of an adjustment for credit risk. For loans with floating interest rates, it is presumed that estimated fair values generally approximate the recorded book balances. Real estate loans secured by 1-4 family residential property were valued using trading prices for similar pools of mortgage-backed securities. Other fixed-rate loans were valued using a present-value discounted cash flow with a discount rate approximating the market for similar assets. Deposit liabilities with no stated maturities have an estimated fair value equal to the recorded balance. Deposits with stated maturities have been valued using a present-value discounted cash flow with a discount rate approximating the current market for similar deposits. The fair-value estimate does not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market. The Company believes the value of these depositor relationships to be significant. The recorded amount of the federal funds purchased, securities sold under agreements to repurchase and short-term borrowings approximates fair value as a result of the short-term nature of these instruments. The estimated fair value of long-term borrowings was determined using a present-value discounted cash flow with a discount rate approximating the current market for similar borrowings. The fair value of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements. The fair value of interest rate swaps (used for hedging purposes) is the estimated amount that the Company would receive or pay to terminate the swap agreements at the reporting date. (12) Regulatory Capital The Company is subject to various regulatory capital requirements administered by both federal and state banking agencies. Failure to comply with minimum capital requirements could result in actions taken by regulators that could have a direct material impact on the Company's financial statements. Under the capital adequacy guidelines established by regulators, the Company must meet specific capital guidelines that involve the measurement of the Company's assets, liabilities and certain off-balance sheet items. The Company's capital amounts and classification are also subject to qualitative judgments by the regulators as it relates to components, risk weightings and other factors. Quantitative measures established by regulators to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the following table) of total and tier 1 capital to risk weighted assets and of tier 1 capital to average assets. As of December 31, 1996, management believes the Company is well-capitalized, as defined under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Company must maintain minimum total risk-based, tier 1 risk- based and tier 1 leverage ratios as set forth in the table. The Company's actual capital amounts and ratios are also presented in the table.
To Be Well- Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio (Dollar amounts in thousands) As of December 31, 1996: Total Capital (to Risk Weighted Assets): Consolidated $134,026 12.64% $84,816 > 8.0% N/A _ Brenton Bank 128,138 12.80 80,099 > 8.0 $100,124 > 10.0% _ _ Tier 1 Capital (to Risk Weighted Assets): Consolidated 122,673 11.57 42,408 > 4.0 N/A _ Brenton Bank 117,476 11.73 40,050 > 4.0 60,075 > 6.0 _ _ Tier 1 Capital (to Average Assets): Consolidated 122,673 7.62 48,312 > 3.0 N/A _ Brenton Bank 117,476 7.90 59,490 > 4.0 74,362 > 5.0 _ _
(13) Common Stock Transactions In October 1996, the Company declared a 10 percent common stock dividend. This transaction resulted in the issuance of 736,843 shares of common stock and the transfer of $3,684,215 from retained earnings to common stock. Fractional shares resulting from this stock dividend were paid in cash. In May 1994, the Company declared a 3-for-2 stock split in the form of a 100 percent stock dividend. This transaction resulted in the issuance of 2,633,895 shares of common stock and the transfer of $13,169,475 from retained earnings to common stock. Net income and cash dividends per share information in the financial statements have been retroactively restated to reflect these transactions. As part of the Company's ongoing stock repurchase plan, in 1996 the Board of Directors increased the amount authorized for common stock repurchases in 1996 to $10 million. For the years ended December 31, 1996, 1995 and 1994, the Company repurchased 347,700, 258,133 and 44,800 shares, respectively, at a total cost of $8,248,331, $4,830,111 and $850,950. (14) Dividend Restrictions The Parent Company derives a substantial portion of its cash flow, including that available for dividend payments to stockholders, from the subsidiary banks in the form of dividends received. State and savings banks are subject to certain statutory and regulatory restrictions that affect dividend payments. Based on minimum regulatory capital guidelines as published by those regulators, the maximum dividends which could be paid by the subsidiary banks to the Parent Company at December 31, 1996, were approximately $16 million. (15) Employee Retirement Plan The Company provides a defined contribution retirement plan for the benefit of employees. The plan is a combination profit sharing and 401(k) plan. All employees 21 years of age or older and employed by the Company for at least one year are eligible for the plan. The Company contributes 4 1/2 percent of eligible compensation of all participants to the profit sharing portion of the plan, and matches employee contributions to the 401(k) portion of the plan up to a maximum of 3 percent of each employee's eligible compensation. Retirement plan costs charged to operating expenses in 1996, 1995 and 1994 amounted to $1,284,000, $1,263,000 and $1,367,000, respectively. The Company offers no material post-retirement benefits. (16) Stock Plans In 1996, the Company adopted the 1996 Stock Option Plan (the "Plan"). The Plan authorizes the granting of options on up to 550,000 shares of the Company's common stock to key employees of the Company. The price at which options may be exercised cannot be less than the fair market value of the shares at the date the options are granted. The options are subject to certain performance vesting requirements, but if vesting is not achieved from performance vesting, 100 percent vesting occurs nine years and six months following the grant date. Options expire ten years and one month following the grant date. At December 31, 1996, there were 79,200 shares available for grant under the Plan. The per-share weighted average fair value of stock options granted during 1996 was $6.60 based on the date of grant using the Company's option pricing model with the following weighted average assumptions: expected dividend yield of 2.15 percent, risk-free interest rate of 6.85 percent, expected life of 7.5 years and expected volatility of stock price of 18 percent. The Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: 1996 Net income As reported $14,015,430 Pro forma 13,768,662 Earnings per share As reported $1.69 Pro forma 1.66 Pro forma net income reflects only options granted in 1996. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' expected life of 7.5 years. There were 470,800 shares granted under the Plan in 1996 with a weighted average exercise price of $22.166. At December 31, 1996, the range of exercise prices and weighted average remaining contractual life of outstanding options was $22.159 - $23.625 and 9.7 years, respectively. No options were exercisable at December 31, 1996. A total of 349,551 shares were granted over the past four years to key management personnel under the Company's long-term stock compensation plan. Under provisions of the plan, no grants were made after 1995. Each grant of shares covers a three-year performance period, 35 percent of which vests upon completion of employment for the performance period and 65 percent of which vests based on a tiered achievement scale tied to financial performance goals established by the Board of Directors. The total stock compensation expense associated with this plan was $1,302,000, $425,000 and $(102,000) for 1996, 1995 and 1994, respectively and changes in outstanding grant shares during 1996 were as follows (restated for the 10 percent common stock dividend effective in 1996 and the 3-for-2 stock split effective in 1994):
Performance 1992 to 1993 to 1994 to 1995 to Period 1994 1995 1996 1997 December 31, 1993 100,642 86,509 --- --- Granted - 1994 --- --- 99,323 --- Forfeited - 1994 --- (2,188) --- --- December 31, 1994 100,642 84,321 99,323 --- Granted - 1995 --- --- --- 98,033 Forfeited - 1995 --- (9,216) (14,724) (7,287) Expired - 1995 (65,418) --- --- --- Vested - 1995 (35,224) --- --- --- December 31, 1995 --- 75,105 84,599 90,746 Forfeited - 1996 --- --- (9,524) (10,369) Expired - 1996 --- (48,819) --- --- Vested - 1996 --- (26,286) --- --- Outstanding grant shares at December 31, 1996 --- --- 75,075 80,377
For the performance period 1994 to 1996, 26,278 shares vested and 48,797 shares expired on January 1, 1997. The Company's 1987 nonqualified stock option plan permits the Board of Directors to grant options to purchase up to 330,000 shares of the Company's $5 par value common stock. The options may be granted to officers of the Company. The price at which options may be exercised cannot be less than the fair market value of the shares at the date the options are granted. The options are subject to certain vesting requirements and maximum exercise periods, as established by the Board of Directors. Changes in options outstanding and exercisable during 1996, 1995 and 1994 were as follows (restated for the 10 percent common stock dividend effective in 1996 and the 3-for-2 stock split effective in 1994):
Exercisable Outstanding Option Price Options Options Per Share December 31, 1993 187,110 202,950 $4.02-8.60 Granted - 1994 --- 9,240 17.86 Vested - 1994 7,920 --- 7.99-8.60 Exercised - 1994 (40,535) (40,535) 4.02-7.99 December 31, 1994 154,495 171,655 4.02-17.86 Vested - 1995 3,300 --- 7.99-8.60 Exercised - 1995 (21,725) (21,725) 4.02 Forfeited - 1995 --- (13,860) 7.99-17.86 December 31, 1995 136,070 136,070 4.02-8.60 Exercised - 1996 (26,800) (26,800) 4.02 December 31, 1996 (13,860 shares available for grant) 109,270 109,270 $4.02-8.60
On May 6, 1997, the shares available for grant will expire. The Company's Employee Stock Purchase Plan allows employees to purchase the Company's common stock at 85 percent of the current market price on four defined purchase dates during the year. During 1996, 16,612 shares of common stock were purchased by employees under this plan. (17) Lease Commitments Rental expense included in the consolidated statements of operations amounted to $1,919,000, $1,937,000 and $1,799,000 in 1996, 1995 and 1994, respectively. Future minimum rental commitments for all noncancelable leases with terms of one year or more total approximately $1,200,000 per year through 2001, $600,000 per year through 2006, $200,000 per year through 2011, and $40,000 per year through 2013, with a total commitment of $10,500,000. (18) Commitments and Contingencies In the normal course of business, the Company is party to financial instruments necessary to meet the financial needs of customers, which are not reflected on the consolidated statements of condition. These financial instruments include commitments to extend credit, standby letters of credit and interest rate swaps. The Company's risk exposure in the event of nonperformance by the other parties to these financial instruments is represented by the contractual amount of these instruments. The Company uses the same credit policies in making commitments as it does in making loans. Commitments to extend credit are legally binding agreements to lend to customers. Commitments generally have fixed expiration dates and may require payment of a fee. Based upon management's credit assessment of the customer, collateral may be obtained. The type and amount of collateral varies, but may include real estate under construction, property, equipment and other business assets. In many cases, commitments expire without being drawn upon, so the total amount of commitments does not necessarily represent future liquidity requirements. The Company had outstanding commitments to extend credit of $221 million and $166 million at December 31, 1996, and 1995, respectively. Standby letters of credit are conditional commitments issued by the Company guaranteeing the financial performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans. Outstanding standby letters of credit totaled $11,770,000 and $20,513,000 at December 31, 1996, and 1995, respectively. The Company does not anticipate losses as a result of issuing commitments to extend credit or standby letters of credit. The Company enters into interest rate swap agreements as part of its asset/liability management strategy to manage interest-rate risk. The notional value of these agreements was $16,205,000 and $10,960,000 at December 31, 1996, and 1995, respectively. The interest rate swap agreements subject the Company to market risk associated with changes in interest rates, as well as the risk of default by the counterparty to the agreement. The credit worthiness of the counterparties was evaluated by the Company's loan committee prior to entering into the agreements. The agreements run through 1998. Brenton Savings Bank, FSB converted from a mutual savings and loan association to a federal stock savings bank in 1990, at which time a $4 million liquidation account was established. Each eligible savings account holder who had maintained a deposit account since the conversion would be entitled to a distribution if the savings bank were completely liquidated. This distribution to savers would have priority over distribution to the Parent Company. The Company does not anticipate such a liquidation. The Company maintains a data processing agreement with ALLTEL Financial Information Services, Inc. (ALLTEL), formerly Systematics, Inc., whereby ALLTEL manages and operates the Company's data processing facility. The contract involves fixed payments of $2,412,000 in 1997 and $2,389,000 in 1998 through 2001 and $1,194,000 in 2002. These fixed payments will be adjusted for inflation and volume fluctuations. The Company is involved with various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's financial statements. (19) Restructuring Charge During the fourth quarter of 1994, the Company finalized plans for a strategic restructuring program. This plan resulted in a special charge of $2.6 million ($1.7 million after tax or $.19 per share), in 1994. A summary of the estimated costs expensed in 1994 and the actual costs incurred in 1995 follows:
1994 Estimated 1995 Actual Costs Costs Salaries and wages $1,089,000 $ 565,263 Employee benefits 289,000 83,409 Occupancy expense 192,000 --- Data processing expense 527,500 389,432 Abandonment losses 267,000 164,945 Legal, regulatory and other 280,500 409,085 $2,645,000 $ 1,612,134
The difference between the estimated costs recorded in 1994 and the actual costs incurred was credited or charged to the above expense categories in the fourth quarter of 1995. (20) Brenton Banks, Inc. (Parent Company) Condensed Financial Information
Statements of Condition December 31 (In thousands) 1996 1995 Assets Interest-bearing deposits with banks $ 5,638 128 Short-term investments --- 7,500 Advances to bank subsidiaries --- 117 Investments in: Bank subsidiaries 124,383 119,325 Bank-related subsidiaries 45 43 Excess cost over net assets 1,826 1,900 Premises and equipment 618 1,375 Other assets 3,168 3,186 ________ _______ $ 135,678 133,574 Liabilities and Stockholders' Equity Accrued expenses payable and other liabilities $ 2,476 1,605 Long-term borrowings 11,248 12,435 Common stockholders' equity 121,954 119,534 _______ _______ $ 135,678 133,574
Statements of Operations Years Ended December 31 (In thousands) 1996 1995 1994 Income Dividends from subsidiaries $ 10,766 8,997 11,691 Interest income 341 442 317 Management fees --- 1,634 1,222 Other operating income 43 2,644 2,128 ________ ______ ______ 11,150 13,717 15,358 Expense Salaries and benefits 1,884 4,021 3,466 Interest on long-term borrowings 970 1,046 1,044 Other operating expense 655 2,006 2,263 ________ ______ ______ 3,509 7,073 6,773 Income before income taxes and equity in undistributed earnings of subsidiaries 7,641 6,644 8,585 Income taxes (1,040) (759) (1,083) Income before equity in undistributed earnings of subsidiaries 8,681 7,403 9,668 Equity in undistributed earnings of subsidiaries 5,334 3,004 439 ________ ______ ______ Net income $ 14,015 10,407 10,107
(20) Brenton Banks, Inc. (Parent Company) Condensed Financial Information
Statements of Cash Flows Years Ended December 31 (In thousands) 1996 1995 1994 Operating Activities Net income $ 14,015 10,407 10,107 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries (5,334) (3,004) (439) Depreciation and amortization 163 230 230 (Increase) decrease in other assets 18 49 (370) Increase (decrease) in accrued expenses payable and other liabilities 871 (148) (373) ________ ______ ______ Net cash provided by operating activities 9,733 7,534 9,155 Investing Activities (Increase) decrease in short-term investments 7,500 1,000 (5,000) Redemption (purchase) of subsidiary equity, net (7) 156 (200) Principal collected from or (advances to) subsidiaries 115 (97) (270) Purchase of premises and equipment, net 669 (512) (648) ________ ______ ______ Net cash provided (used) by investing activities 8,277 547 (6,118) Financing Activities Net proceeds (repayment) of long-term borrowings (1,187) (209) 622 Proceeds from issuance of common stock under the long-term stock compensation plan 335 362 --- Proceeds from issuance of common stock under the stock option plan 291 188 386 Proceeds from issuance of common stock under the employee stock purchase plan 72 --- --- Payment for shares acquired under common stock repurchase plan (8,248) (4,830) (851) Payment for fractional shares in stock dividends (14) --- (4) Dividends on common stock (3,749) (3,498) (3,472) ________ ______ ______ Net cash used by financing activities (12,500) (7,987) (3,319) Net increase (decrease) in cash and interest- bearing deposits 5,510 94 (282) Cash and interest-bearing deposits at the beginning of the year 128 34 316 Cash and interest-bearing deposits at the end of the year $ 5,638 128 34
(21) Unaudited Quarterly Financial Information The following is a summary of unaudited quarterly financial information (in thousands, except per common and common equivalent share data):
1996 Three months ended March 31 June 30 Sept. 30 Dec. 31 Interest income $ 27,370 27,512 27,923 28,578 Interest expense 13,701 13,645 13,813 14,172 _______ ______ ______ ______ Net interest income 13,669 13,867 14,110 14,406 Provision for loan losses 700 800 600 800 _______ ______ ______ ______ Net interest income after provision for loan losses 12,969 13,067 13,510 13,606 Noninterest income 5,552 5,622 5,776 6,377 Noninterest expense 13,355 13,471 14,685 14,579 _______ ______ ______ ______ Income before income taxes and minority interest 5,166 5,218 4,601 5,404 Income taxes 1,446 1,497 1,275 1,553 Minority interest 140 153 153 157 _______ ______ ______ ______ Net income $ 3,580 3,568 3,173 3,694 Per common and common equivalent share: Net income $ .42 .43 .39 .45
1995 Three months ended March 31 June 30 Sept. 30 Dec. 31* Interest income $ 26,611 27,852 28,442 28,135 Interest expense 13,597 14,807 14,670 14,634 _______ ______ ______ ______ Net interest income 13,014 13,045 13,772 13,501 Provision for loan losses 460 459 486 460 _______ ______ ______ ______ Net interest income after provision for loan losses 12,554 12,586 13,286 13,041 Noninterest income 4,271 4,499 4,379 4,697 Noninterest expense 13,681 13,736 13,402 14,232 _______ ______ ______ ______ Income before income taxes and minority interest 3,144 3,349 4,263 3,506 Income taxes 573 661 1,143 828 Minority interest 121 124 122 283 _______ ______ ______ ______ Net income $ 2,450 2,564 2,998 2,395 Per common and common equivalent share: Net income $ .28 .30 .36 .28 * See footnote 19 regarding the restructure charge.
MANAGEMENT'S REPORT The management of Brenton Banks, Inc. is responsible for the content of the consolidated financial statements and other information included in this annual report. Management believes that the consolidated financial statements have been prepared in conformity with generally accepted accounting principles appropriate to reflect, in all material respects, the substance of events and transactions that should be included. In preparing the consolidated financial statements, management has made judgments and estimates of the expected effects of events and transactions that are accounted for or disclosed. Management of the Company believes in the importance of maintaining a strong internal accounting control system, which is designed to provide reasonable assurance that assets are safeguarded and transactions are appropriately authorized. The Company maintains a staff of qualified internal auditors who perform periodic reviews of the internal accounting control system. Management believes that the internal accounting control system provides reasonable assurance that errors or irregularities that could be material to the consolidated financial statements are prevented or detected and corrected on a timely basis. The Board of Directors has established an Audit Committee to assist in assuring the maintenance of a strong internal accounting control system. The Audit Committee meets periodically with management, the internal auditors and the independent auditors to discuss the internal accounting control system and the related internal and external audit efforts. The internal auditors and the independent auditors have free access to the Audit Committee without management present. There were no matters considered to be reportable conditions under Statement of Auditing Standards No. 60 by the independent auditors. The consolidated financial statements of Brenton Banks, Inc. and subsidiaries are examined by independent auditors. Their role is to render an opinion on the fairness of the consolidated financial statements based upon audit procedures they consider necessary in the circumstances. Brenton Banks, Inc. Robert L. DeMeulenaere President Steven T. Schuler Chief Financial Officer/Treasurer/Secretary INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders of Brenton Banks, Inc: We have audited the accompanying consolidated statements of condition of Brenton Banks, Inc. and subsidiaries as of December 31, 1996, and 1995, and the related consolidated statements of operations, changes in common stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Brenton Banks, Inc. and subsidiaries at December 31, 1996, and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Des Moines, Iowa February 7, 1997 STOCK INFORMATION Brenton Banks, Inc. common stock is traded on the NASDAQ National Market and quotations are furnished by the NASDAQ System. There were 1,562 common stockholders of record on December 31, 1996.
MARKET AND DIVIDEND INFORMATION 1996 High Low Dividends 1st quarter $22.05 19.09 .109 2nd quarter 22.05 20.68 .109 3rd quarter 22.73 21.36 .118 4th quarter 28.00 22.50 .118
1995 High Low Dividends 1st quarter $17.05 16.14 .10 2nd quarter 17.27 16.14 .10 3rd quarter 18.64 16.25 .10 4th quarter 20.68 17.50 .109
The above table sets forth the high and low sales prices and cash dividends per share for the Company's common stock, after the effect of the October 1996 10% common stock dividend. The market quotations, reported by NASDAQ, represent prices between dealers and do not include retail markup, markdown or commissions. NASDAQ Symbol: BRBK Wall Street Journal and Other Newspapers: Brent B Market Makers ABN AMRO Chicago Corporation Herzog, Heine, Geduld, Inc. Howe, Barnes Investments, Inc. Keefe, Bruyette & Woods, Inc. Stifel, Nicolaus & Co., Inc. Wedbush Morgan Securities, Inc. FORM 10-K COPIES OF BRENTON BANKS, INC. ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION FORM 10-K WILL BE MAILED WHEN AVAILABLE WITHOUT CHARGE TO SHAREHOLDERS UPON WRITTEN REQUEST TO STEVEN T. SCHULER, CHIEF FINANCIAL OFFICER/ TREASURER/SECRETARY, AT THE CORPORATE HEADQUARTERS. STOCKHOLDER INFORMATION Corporate Headquarters Suite 200, Capital Square 400 Locust Street Des Moines, Iowa 50309 Telephone 515/237-5100 Annual Shareholders' Meeting Wednesday, May 7, 1997, 5:00 p.m. Des Moines Convention Center 501 Grand Avenue Des Moines, Iowa 50309 Transfer Agent/Registrar/ Dividend Disbursing Agent Harris Trust and Savings Bank 311 West Monroe Street Chicago, Illinois 60690 Legal Counsel Brown, Winick, Graves, Gross, Baskerville and Schoenebaum, P.L.C. Suite 1100, Two Ruan Center 601 Locust Street Des Moines, Iowa 50309 Independent Auditors KPMG Peat Marwick LLP 2500 Ruan Center 666 Grand Avenue Des Moines, Iowa 50309 CORPORATE STRUCTURE BRENTON BANKS, INC. BOARD OF DIRECTORS C. Robert Brenton Chairman of the Board Brenton Banks, Inc. William H. Brenton Past Chairman (21 Years) Past Chairman, Executive Committee (5 Years) Past President (5 Years) Brenton Banks, Inc. J.C. Brenton Past President Brenton Banks, Inc. Gary M. Christensen President & CEO Pella Corporation Robert L. DeMeulenaere President Brenton Banks, Inc. R. Dean Duben Vice Chairman of the Board Brenton Bank, Davenport Hubert G. Ferguson Financial Services Consultant New Brighton, Minnesota BRENTON BANKS, INC. EXECUTIVE OFFICERS C. Robert Brenton Chairman of the Board Robert L. DeMeulenaere President Steven T. Schuler Chief Financial Officer/Treasurer/ Secretary BRENTON BANK SENIOR OFFICERS AND LINE OF BUSINESS MANAGERS C. Robert Brenton Chairman of the Board Robert L. DeMeulenaere Chief Executive Officer/President Larry A. Mindrup Chief Banking Officer President, Des Moines Phillip L. Risley Chief Administrative Officer/Cashier Perry C. Atwood Chief Sales Officer Woodward G. Brenton Chief Commercial Banking Officer Charles N. Funk Chief Investment/ALCO Officer Ronald D. Larson Regional President Eastern Iowa Division President, Cedar Rapids Marc J. Meyer Regional President Western Iowa Division President, Adel Steven T. Schuler Chief Financial Officer/Treasurer/ Secretary Norman D. Schuneman Chief Credit Officer Steven D. Agan President, Knoxville John H. Anderson President, Davenport Thomas J. Friedman President, Ankeny Kevin Z. Geis President, Brenton Savings Bank, FSB Ames Robert L. German President, Dallas Center John M. Hand President, Emmetsburg Dennis H. Hanson President, Grinnell Richard H. Jones President, Perry V. Blaine Lenz President, Eagle Grove James L. Lowrance President, Marshalltown Clay A. Miller President, Clarion Jeffrey J. Nolan President, Jefferson Clark H. Raney President, Indianola Gary D. Ernst President, Trust Division Marsha A. Findlay Senior Vice President, Des Moines Senior Retail Banking Officer Mark J. Hoffschneider President, Brenton Mortgages Douglas F. Lenehan President, Diversified Commercial Services Division Loras J. Neuroth President, Brenton Insurance Elizabeth M. Piper/Bach President, Brenton Investments Catherine Reed Senior Marketing Officer Thomas J. Vincent President, Agricultural Banking Division EX-21 35 Exhibit 21 Subsidiaries. 286 Subsidiaries The subsidiaries of Brenton Banks, Inc., their location, the jurisdiction in which they are incorporated or organized, and the names under which subsidiaries do business are: Name Under which Subsidiary Jurisdiction in Does Business and Location which Incorporated or of Subsidiary Organized Banks Brenton Savings Bank, FSB United States Ames, Iowa Brenton Bank Iowa Des Moines, Iowa Non-Bank Subsidiaries Brenton Investments, Inc. Iowa Des Moines, Iowa Brenton Insurance Services, Inc. Iowa Des Moines, Iowa Brenton Mortgages, Inc. Iowa Des Moines, Iowa Brenton Insurance Inc. Iowa Marshalltown, Iowa Brenton Independent Insurance Iowa Services of Tama County, Inc. Toledo, Iowa Brenton Realty Services, Ltd. Iowa Marshalltown, Iowa 287 EX-23 36 Exhibit 23 Consent of KPMG Peat Marwick LLP to the incorporation of their report dated February 7, 1997, relating to certain consolidated financial statements of Brenton Banks, Inc. into the Registration Statement on Form S-8 of Brenton Banks, Inc. 288 AUDITORS' CONSENT The Board of Directors Brenton Banks, Inc.: We consent to incorporation by reference in the Registration Statement on Form S-8 of Brenton Banks, Inc. of our report dated February 7, 1997, relating to the consolidated statements of condition of Brenton Banks, Inc. and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of operations, changes in common stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996 which report appears in the December 31, 1996, annual report on Form 10-K of Brenton Banks, Inc. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Des Moines, Iowa March 25, 1996 289 EX-27 37
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1 12-MOS DEC-31-1996 DEC-31-1996 76,900,524 731,554 15,200,000 0 461,099,272 72,754,985 73,316,000 941,943,513 11,328,359 1,632,095,082 1,353,057,111 100,976,120 21,247,598 34,860,024 40,428,420 0 0 81,525,809 1,632,095,082 80,301,707 29,596,714 1,484,696 111,383,117 49,507,425 5,823,550 56,052,142 2,900,000 321,256 56,693,553 19,786,030 19,786,030 0 0 14,015,430 1.69 1.69 7.58 2,663,000 2,936,000 568,000 6,167,000 11,069,869 4,061,211 1,419,701 11,328,359 11,328,359 0 0
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